June 4, 2020

 

Thai drought may increase wheat import demand

 

 

Severe drought in Thailand is seen to diminish the country's exportable surplus of rice and potentially increase demand for imported wheat and barley in the 2020/21 marketing year, Grain Central reported.

 

In the first five months of 2020, this drought has adversely affected the production of off-season (dry season) rice and corn, primarily due to a lack of irrigation water as reservoirs are critically low.

 

Most of Thailand's rice and corn production occurs during their wet season with planting commencing in May and running through to the end of June for rice and the end of August for corn.

 

The corn harvest commences in September and runs to the end of the year while the rice harvest is concentrated into the last two months of the year.

 

The dry season production cycle is heavily reliant on the availability of irrigation water. Most of the planting occurs in November and December, and harvest is generally completed by the end of April.

 

The area planted to dry-season crops fell 36% to 1.4 million hectares relative to the 2018/19 crop year, after historically low precipitation during the 2019 monsoon led to record low water storage inflows late last year. Consequently, production of off-season rice and corn are forecast to decline by 41% and 25% respectively compared to the previous season.

 

Thailand's corn production in the current marketing year is expected be around 4.5 million tonnes, a fall of 20% on 2018/19 levels. This was mainly due to an infestation of fall armyworm in the wet-season crop and a dry spell in June and July last year, seriously slowing early crop development.

 

Demand for feed grain in Thailand in 2020/21 is forecast to remain relatively static at around 20.3 million tonnes as shrinking swine production, a result of African swine fever, is offset by growing production in the poultry, dairy cattle, and fishery sectors. Nevertheless, this is contingent upon a recovery in animal protein consumption to pre-COVID-19 levels by early 2021 at the latest.

 

Of the total feed demand, the derived demand for corn is estimated at around 8.5 million tonnes. But even with an expected rebound in domestic corn production in 2020/21, local corn producers will still only be able to supply around six million tonnes.

 

It is this gap, between domestic animal feed requirements and corn production, that will drive import demand for corn, particularly from neighbouring countries like Myanmar, and other livestock feeds such as feed wheat, barley and dried distillers' grain.

 

Thai wheat imports are forecast to decrease by 2% in 2020/21, to 3.2 million tonnes. Milling wheat is expected to make up just over one-third of these imports at 1.1 million tonnes, down from 1.4 million tonnes in 2019/20. The current season imports were higher than normal after flour millers built stocks when the government announced plans to ban the agricultural pesticides glyphosate, paraquat, and chlorpyrifos.

 

Feed wheat for the intensive livestock production sector makes up the 2.1 million tonnes import balance. The government retains import limits on feed wheat that have been in place since January 2017 to protect domestic corn farmers from cheaper feed wheat imports.

 

Under these restrictions, importers are required to purchase domestic corn before being permitted to import feed wheat at a 3-to-1 absorption ratio. In other words, to import a tonne of feed wheat, a mill must use three tonnes of domestic corn. The government also set the minimum purchase price for 2019/20 season domestic corn at THB8 per kilogramme, approximately US$252/tonne, for feed mills.

 

With lower domestic corn production, these constraints seriously hamper the ability of stockfeed merchants to fill the demand void with imported wheat. This is where imported feed barley comes into the equation.

 

Last week the Thai Feed Millers Association (TFMA) passed on its wheat tender which had called for up to 227,500 tonnes of feed wheat for August to October delivery. It was said the offers were considered too high. The lowest was reported around US$215/tonne cost & freight (C&F), AUD10/tonne higher than expectations.

 

Maybe this opens the door for more purchases of Australian feed barley. Australian barley prices have recovered somewhat from the sharp drop after the draconian Chinese tariffs were imposed, but at around AUD195/tonne C&F Thailand, it is significantly cheaper than the latest feed wheat tender prices.