July 31, 2009

 

Rice prices in Asia are expected to find support in coming sessions, despite recent softness in bellwether Chicago Board of Trade futures, with the market likely to continue focusing on the weak start to India's monsoon season.

 

In the longer term, the prospect of a looming El Nino weather event in the coming months, which could effect crop output throughout the region, may also be a bullish factor, traders said Friday.

 

India's annual monsoon rains slowed in the week ended July 29, after two weeks of good rainfall had raised hopes that a dry spell had ended, according to data from the India Meteorological Department Thursday.

 

Monsoon rains in June were the driest in 83 years. The four-month rainfall is crucial to summer-sown crops because 60% of farming areas are rain-fed. The drop in rainfall in the last week of July could dash hopes of a late pickup in plantings of summer-sown crops including rice, soy and pulses.

 

Sowing of the rice crop fell by about 28% between June 1-July 27 from a year earlier to 15.6 million hectares because of the below-average rainfall.

 

Still, CBOT rice, having already fallen slightly for the last two consecutive sessions, continued to decline in Asian trading Friday - at 0530 GMT e-CBOT's September contract was down 4.50 U.S. cents at US$13.70 a hundredweight - with analysts now saying the market appears overbought, for the near term at least.

 

In the U.S., lackluster rice export sales were a slightly bearish factor for CBOT rice, participants said.

 

Weekly net sales of 31,300 metric tonnes were up 27% from the previous week but down 29% from the prior four-week average.

 

The overall potential for further upside remains intact going forward, with the market focus likely to stay on India's lack of rain, while in the longer term the development of an El Nino weather situation in the months ahead could have an adverse impact on crop output throughout the region, traders said.

 

Ocean conditions in the Pacific Basin remain at levels consistent with an El Nino climate episode, but the recent positive values of the Southern Oscillation Index, or SOI, are unusual - a persistent, negative SOI is one of the hallmarks of El Nino events, the government's Bureau of Meteorology said Friday.

 

"Six of the seven international coupled climate models surveyed here are predicting that Pacific Ocean sea surface temperature in the outlook period will remain above El Nino thresholds throughout most of the second half of 2009," the bureau reported in a monthly review of guidance from its computer models.

 

Given the high level of persistence and hence predictability of Pacific Basin conditions in the calendar second half, "the probability of an El Nino event continuing to develop and maturing late in 2009 is high," it said.

 

Indonesia already estimates around 80,000 to 150,000 hectares of paddy fields will experience drought if the El Nino weather pattern hits the country in the later part of this year.

 

Assuming a yield of 5 metric tonnes of unmilled rice per hectare and 150,000 hectares of paddy affected by El Nino, Indonesia may see this year's production decrease by 750,000 tonnes, Bayu Krisnamurthi, deputy to the coordinating minister, told Dow Jones Newswires this week.

 

In 1997-98, an El Nino situation caused droughts in several Asian countries, affecting crop output in the process.