Singapore, Feb 5 - Manila's deal to secure the bulk of its rice supplies for 2009 at one go and India's imminent move to resume exports are likely to herald a period of plentiful supply and price stability after last year's volatility.
Rice prices trebled to hit a record peak of $1,080 a tonne in May last year, when governments and importers rushed to stock up the grain on fears the food staple would be in short supply amid high domestic inflation. Prices have since receded by half.
But at the start of this year, the Philippines, the world's biggest rice importer, agreed to buy around 1.5 million tonnes in an inter-governmental deal with Hanoi in a bid to avoid last year's price flare-up that had been triggered by Manila's open tenders.
"The market is going to be different, with prices currently very much lower when compared with the peaks of last year," said Darren Cooper, a senior economist with International Grains Council (IGC) in London.
"We probably won't see as much volatility as last year because there won't be panic buying that we saw last year."
But prices of low-grade Vietnamese rice may find support of up to 15 percent because of tight supplies resulting from the Philippine deal, traders and analysts said, given Vietnam is the sole source of white rice over the next two to three months.
Although the Manila deal led to an 8 percent rise in the price of the Vietnamese 25-percent broken grade since last month, a repeat of 2008 is unlikely.
For one, rice producers who boosted production in response to high prices last year now have their own ballooning stockpiles to worry about.
World rice output is forecast to rise to a record 439 million tonnes in 2008/09 from 430.9 million tonnes a year ago, thanks to a larger area under cultivation, the IGC said.
"Although there are some countries that have yet to bring in the main crops, globally production is fine," said IGC's Cooper. "There appears to be no problem with supplies as things stand currently."
INDIAN EXPORTS
Traders said India's imminent entry into the market after its general elections in April or May was likely to be key, and buyers will likely refrain from making huge purchases until then.
"The key thing which will restrain the market is the firm belief that it is just a matter of time before India enters the market and nobody wants to be caught with a wrong position at that time," said a Singapore-based rice trader. "The market will move in a very tight range."
India has held onto its rice export curbs imposed last year despite record harvests, fearing that open overseas sales could cause price spikes domestically and hurt the ruling coalition's prospects in elections.
But the country, which competes with Vietnam for second place with Thailand in the rice export market, is unlikely to keep restrictions on rice exports for too long.
Its silos are overflowing after a record harvest in 2008 and the upcoming wheat crop may prompt the government to allow limited exports, sooner than expected.
"Small packing of non-basmati rice exports may be allowed very soon," said Vijay Setia, president of All India Rice Exporters' Association. "If it happens before elections, it will have quantitative restrictions with minimum export price."
And with India's inflation near a 11-month low and bulging grain stocks, traders in Singapore said New Delhi is likely to take a more pragmatic approach.
"There is no food insecurity and inflation is at low levels," the Singapore trader said. "They have reversed their decisions on other commodities, they will do it on rice also," he said, referring to India's decision to lift a ban on corn exports last year.
India's 25 percent broken rice is quoted around $320 per tonne free on board, making it about 20 percent cheaper than a similar grade available in Vietnam.
Traders said India could resume non-basmati exports and sell up to 2 million tonnes in 2009 to its traditional customers in the Middle East and Africa.
Thailand is also sitting on 6 million tonnes of rice reserves it desperately wants to offload through government-to-government contracts, for which it has had limited success.
Its inter-governmental deal with North Korea ended in tears after the latter bought Thai rice at a lower than market price back in 1993, without having paid any of the $120 million it owed to date.
Notwithstanding, Thai Deputy Commerce Minister Alongkorn Pollabutr told Reuters last month he planned to sell rice from the country's swelling stocks to ease storage costs, with Iran as a possible buying target.
Also potentially putting a lid on prices is Indonesia's plan to export 100,000 tonnes of premium rice this year, its first foray into the international market after 16 years.