Nov 3, 2008

CP bullish on 2009 farm prices

Bangkok Post - Thailand 30 Oct 2008

Phusadee Arunmas

Farm commodity prices are expected to remain promising next year as the world's stocks keep pace with consumption, according to the country's largest agro-industrial conglomerate, the Charoen Pokphand Group.

"We still believe prices of farm commodities like rice, rubber, tapioca, palm oil and maize will manage to rebound by about 15-20% late this year or early next year," said Sumeth Laomoraphorn, president of CP Intertrade, the trading arm of CP Group.

"Demand for agricultural products remains strong, as the world's supplies are not much larger than annual consumption. More importantly, increased demand is likely if any importing country faces a natural disaster."

Prices of farm commodities have fallen by 70-80% from record highs since early in the year largely because of profit-taking by global fund managers in the wake of the US financial mortgage crisis and oil price drops.

Montri Congtrakultien, the CEO and president of the Crop Integration Business Group of CP, said the drop of farm prices also stemmed from concerns about a global economic recession, prompting investors to sell equities and reduce their exposure to commodities.

According to the United States Department of Agriculture, the world's rice stocks for 2008-09 are estimated at 18.74 million tonnes, slightly higher than 18.09 million tonnes in 2007-08, while total production is estimated to rise three million tonnes to 432 million.

World rice demand is estimated at 429 million tonnes for 2008-09 compared with 427 million in 2007-08.

Mr Sumeth attributed the global fall in rice prices to abundant supply from Vietnam, the world's second-largest rice exporter. He said Vietnam was also speeding up selling its surplus grain, as exporters own no large warehouses and they need cash to repay loans that carry interest rates as high as 20%.

Vietnamese traders currently quote 5% white rice export prices at $350 to $360 per tonne, compared with $630 for Thai white rice.

Normally, differences between Thai and Vietnamese rice are only $30-50.

According to the Thai Rice Exporters Association, the benchmark export price of white rice was cut yesterday by 8% to the lowest since March 26.

The price of 100% grade B rice was set at $580 a tonne, compared with $630 last week. The price averaged $336 in October last year. The price of 25% white rice was set at $485, down from $522 a week earlier and compared with $313 last year. The association meets every Wednesday to set prices.

"What the government should do right now is shore up local rice prices and other farm products to help farmers stay afloat," said CP's Mr Sumeth.

Also, to prevent further pressure on prices, the government should delay its plan to ramp up selling its 4.3-million-tonne stockpile of milled rice, he said.

Mr Montri said price intervention initiatives should be temporary.

In the longer term, Mr Sumeth urged the government to accelerate its plans to allocate appropriate cultivation areas for particular crops, promote research and development on local varieties to provide higher yields, and upgrade agricultural technology.

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