Bangkok, Oct 8 - Benchmark Thai rice fell below $700 per tonne for the first time since a global buying frenzy gripped the market in March, and traders said prices could slide another 10 percent as the government delayed more buying.
Prices slipped to $680 a tonne, though still double the level of a year ago, after Bangkok's initial price support scheme expired on Sept. 30. The government may struggle to carry out a new scheme later in the year as it runs out of storage space for the grain, causing prices to fall as low as $600.
"There's no positive factor for Thai rice prices this week and they are expected to fall further in October as the new buying scheme is likely to be postponed," one exporter said.
Huge paddy supplies about to hit the market, thin foreign demand and swollen stocks also weighed on prices.
The latest dip is more evidence of the easing in world food prices, with U.S. wheat prices having more than halved from their record high, and corn down 45 percent after prices spiked this spring, triggering a wave of warnings about shortages and inflation.
The benchmark price for 100 percent B grade white rice surged to a record high $1,080 a tonne in April after consumer nations with low stockpiles piled into the market fearing a shortage, but fell to just above $700 a tonne by July, as the panic eased and new crops reached the market.
In order to protect farmers' income at a time when input costs such as fertiliser had surged, Bangkok announced a plan to buy rice at the equivalent of around $700 a tonne.
It had also said it would resume the scheme from mid-October, but officials now said that appeared unlikely.
"But the programme is likely to be postponed to Nov. 1 as it seems like the government hasn't prepared space to store the new crop," a Commerce Ministry official said.
Cheap paddy was expected to leak on to the market as farmers, beginning to fear the government support scheme might not kick in, would want to sell paddy immediately while prices remained relatively high.
Most farmers are poor and live in remote areas. They do not have silos or even small granaries to store the harvested rice, and are perenially short of funds anyway.
"At the time when the harvesting starts in November, paddy rice may fall below 10,000 baht a tonne, equivalent to around $600 for export milled rice," one trader said.
The government's promise to pay as high as 14,000 baht per tonne will mean it would need to find more than 100 billion baht to buy the 8 million tonnes it has indicated, at a time when the budget is tight and the economy is slowing because of a global credit crisis and domestic political unrest.
"The government is considering seeking a loan from the BAAC in order to have enough cash to kick off the scheme on time," Commerce Minister Chaiya Sasomsab said, referring to the state-run Bank of Agriculture and Agricultural Cooperatives.
But the BAAC has not yet approved a loan and the government could delay the scheme to Nov. 1, a government official said.
That has fuelled farmers' doubts the scheme will work and will feed their rush to sell the grain, even if prices fall.
SWOLLEN STOCKS
Apart from the bumper crop likely to flood the market by the end of this year -- the government has forecast 23.8 million tonnes of paddy from the main crop, to be harvested in November -- Thai rice prices will also come under pressure from historically high stocks, traders said.
The government is believed to hold stocks of up to 4.3 million tonnes of milled rice, its highest level since 2006.
The Commerce Ministry said in August it would release around 2.1 million tonnes from the stocks by the end of September to free up space for new purchases.
But not a single tonne of rice has been sold, either to foreign governments or Thai exporters.
"Overseas demand is very thin as countries have replenished their stocks and we, the exporters, also have ample stocks to sell. Who else is going to buy rice from the government?" said a Bangkok-based international trader.
Traders said that if the government wanted to make sure its new support scheme started, it might have to offer its stockpile cheaply so as to dispose of it.
"But if those huge stocks were released, prices would fall significantly anyway," an Indian trader said.