FAO Rice Market Monitor, April 2017, Volume XX - Issue No. 1
Release date: 19 April 2017
The 2016 season is nearing completion, as harvests of secondary crops are now underway in northern hemisphere countries. Notwithstanding a somewhat turbulent start, FAO’s latest production forecast confirms the record outcome of the season. Global paddy production in 2016 is set to reach 751.9 million tonnes (499.2 million tonnes, milled basis), which is 3.9 million tonnes more than December forecasts and 1.6 percent above the 2015 depressed level. The upturn was made possible by a normal climatic unfolding of the season, which permitted various northern-hemisphere producers that had been struck by adverse weather the previous two years to reclaim lands for paddy cultivation. This was especially the case in Asia, which is set to lead the global recovery, garnering a record of 680.1 million tonnes. Much of the region’s growth is expected to concentrate in India and Thailand, although Cambodia, the Islamic Republic of Iran, Iraq, the Democratic People’s Republic of Korea, Japan, the Lao People’s Democratic Republic, Nepal, Myanmar and the Philippines are all set to gather more. This would more than compensate for weather-induced shortfalls in China (Mainland), Malaysia, Timor Leste, Sri Lanka and Viet Nam, with poor price prospects similarly behind reductions in the Republic of Korea and Pakistan.
The 2016 season also unfolded well in Africa, where a record of 30.8 million tonnes are predicted to be gathered. The 7 percent expansion would be spearheaded by Mali and the United Republic of Tanzania. Nonetheless, good growing conditions and sustained support to the sector fostered widespread gains across West Africa, with output also recovering in Egypt due to attractive margins. This helped to compensate for poor outturns in Cote d’Ivoire, Gambia, Kenya, Liberia, Malawi, Mauritania, Mozambique, Uganda and Togo in most cases due to precipitation shortages. More attractive paddy prices relative to competing crops also encouraged a production rebound in the United States, but the season proved more challenging elsewhere. In Latin America and the Caribbean, a combination of erratic weather and prospects of reduced margins depressed output in Argentina, Bolivia, Brazil, Ecuador, Guyana, Uruguay, and Venezuela, overshadowing gains in Chile, Colombia, Cuba, the Dominican Republic, Mexico and Peru. In Oceania, limited and costly water supplies for irrigation also curbed production in Australia.
Assuming normal growing conditions, FAO’s preliminary forecast of global paddy production in 2017 is set at 758.9 million tonnes (503.8 million tonnes, milled basis). The forecast would imply a 0.9 percent annual expansion, while suggesting a likely slowdown in the rate of production growth next season. This could be especially the case in Asia, which is expected to account for much of the global production expansion, but where important rice producers have seen returns diminished by large harvests or crops already undermined by inclement weather. Within the region, large absolute gains are expected to concern China (Mainland), India and Indonesia, where rice continues to benefit from strong state incentives. Output is also expected to expand in Bangladesh, Democratic People's Republic of Korea, Malaysia, Myanmar, Nepal, Pakistan, the Philippines, Thailand, Turkey and Viet Nam, more than compensating for contractions in Afghanistan, Cambodia, the Republic of Korea and Sri Lanka. In Africa, erratic rains have marred the outlook for Madagascar and the United Republic of Tanzania, adding to prospects of a shortfall in Egypt, as lands are returned to cotton cultivation. However, provided no major setback is incurred, continued efforts to reduce reliance on imports could lead to further inroad across West Africa, thus keeping output in the continent close to the excellent 2016 harvest. In Latin America and the Caribbean, constraints posed by high production costs and unattractive prices have precluded significant area reclamations in South America. Yet, crops have generally benefited from conducive weather, which is expected to sustain a recovery in the region’s output. Elsewhere in the world, Europe and the United States look headed towards production contractions, amid diminished margins; whereas output in Australia is set to stage a strong recovery thanks to abundant water availabilities and lower irrigation costs.
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After contracting for two successive years, global rice deliveries are forecast to recover partially in calendar 2017 to 43.3 million tonnes (milled basis). The predicted 4 percent annual upturn hinges on expectations that output shortfalls and efforts to reconstitute reserves will lead to a livelier pace of purchases by key buyers in Asia and Africa, namely Madagascar, Nigeria, the Philippines and Sri Lanka. However, in the context of generally good crop harvest and lingering currency or policy constraints, volumes delivered to both continents are predicted to fall short of previous records. Import demand is instead expected to wane in the Americas and Europe, amid comfortable supply situations. On this backdrop, competition for markets among the various global suppliers of rice is likely to remain intense over the year. Although India is still seen posting the largest annual export advance, its five-year primacy in the global rice trade arena could be increasingly rivalled by Thailand, who has seen its competitiveness re-established by an output rebound and Government stock releases. Australia, Myanmar, Paraguay, Uruguay and Viet Nam are all similarly anticipated to export more in 2017. Instead, weaker demand from traditional outlets may diminish sales by Cambodia, the European Union, Guyana, and the Russian Federation, with supply constraints also expected to undermine shipments by Argentina, Brazil and Pakistan over the year.
FAO forecasts world rice utilization in 2016/17 to amount to 500.3 million tonnes (milled basis), up 1.0 percent year-on-year. The predicted expansion would be imputable to 1.3 percent advance in food intake to 401.8 million tonnes. Quantities destined to animal feed are also predicted to expand to 18.3 million tonnes, while other uses absorb another 80.2 million tonnes. Based on preliminary prospects for 2017 crops, FAO forecasts world rice utilization in 2017/18 to expand by an additional 6.2 million tonnes to 506.5 million tonnes. Consumption of rice as food is again expected to sustain most of this growth, enabling global per capita food use to remain stable at 54.1 kilos.
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Following a 1.0 million tonne upward adjustment since December, global rice inventories at the close of 2016/17 marketing years are seen holding steady at 171.3 million tonnes. The forecast suggests that global rice production in 2016 is likely to keep pace with consumption, permitting the world stocks-to-use ratio to remain at a comfortable 33.8 percent this season. From a trade perspective, the five major rice exporters remain forecast to draw their inventories down, led by cuts in Pakistan and Thailand. However, these reductions would be balanced by accumulations elsewhere, especially amongst rice importing countries, such as China (Mainland), Colombia, Mali, Nepal and the United Republic of Tanzania. On the other hand, based on early prospects for the 2017 season, FAO tentatively puts global rice reserves at the close of 2017/18 marketing years at 170.7 million tonnes, down 600 000 tonnes from 2016/17. To a large extent, the relative stability would reflect prospects of additional accumulations taking place in China (Mainland). However, much will depend on the Chinese Government’s stance towards its stock releases. At the same time, additional cuts could concern Thailand next season, should the Thai Government be successful in disposing of its stockpiles in the remainder of 2017. Combined with reductions in the United States, smaller Thai carryovers could result in a fourth successive season of drawdowns in the major rice exporters.
After touching multi-year lows in the last months of 2016, international rice prices staged a partial recovery in the first months 2017. This was reflected by the FAO All Rice Price Index (2002-2004=100), which averaged 198 points in mid-April, up 6 percent from December 2016 levels. The tendency for prices to strengthen was most evident in the fragrant segment, where diminished basmati availabilities due to successive years of output cuts were met with a resurgence of demand. Albeit more modestly, Indica prices have also regained ground, finding support in stockpiling efforts and appreciating currencies. Instead, Japonica quotations continued to be weighed by lacklustre trade. Rice export prices could come under downward pressure in the coming months, as harvests of offseason crops in the northern hemisphere and of main crops along and south of the Equator progress. This could be especially so, if these crops prove abundant as current indications have it. In this context, import decisions are likely to continue playing a decisive role. In the major exporters, such as India and Thailand, decisions regarding supplies held by Governments and their rate of absorption or release will also be important, as will currency movements. In recent months, appreciating currencies in some leading suppliers have tended to dampen the impact of abundant crops and subdued demand on dollar denominated offerings. This is while the purchasing power of important buyers continues to be diminished by weaker local currencies.