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Thailand, Vietnam in cahoots in the rice market

(Editor’s note: On Nov. 16, major rice exporters from Thailand and Vietnam signed a memorandum of understanding on exchanging information on rice and daily price levels. This was aimed at helping the two countries, the two biggest rice exporters in the world, prevent price-cutting practices previously used by rice dealers. Thailand also pledged to invest in Vietnam’s rice processing to help increase the quality of rice for exports).

In cahoots is a term for collaboration. Vietnam and Thailand are hoping to have an impact on the world rice market through being in cahoots. I have no idea where the term comes from, but it sort of means being in league with, usually associated with questionable behavior, typical of cartels or some entity that more or less controls a market.

It is sometimes effective to have a cartel of extractive industries such as in diamonds or crude oil. Cartels work well as long as there is no competitive production, but they do not work well in agriculture because there is a new crop grown every year that needs to be marketed.

Together, Vietnam and Thailand control about 50 percent of the world rice trade. Usually cartels are formed for one reason, to raise the price of a product. I do not hold out much hope that Vietnam and Thailand being in cahoots will work to raise prices.

My personal view is that what happens in Asia does not have a lot to do with what happens right here unless cargoes upon cargoes of Asian rice start steaming to the United States.

By the way, there is a cargo of brokens trying to make its way into the United States. It is for dog food. I hope it does not have weed seed in it like the one that tried to come into New Orleans as that could get very expensive for the importer.

The United States does not have trade barriers against rice imported in containers, but it can get downright hostile to ag commodities that come into the United States in cargoes, especially low-grade broken rice. It is hard enough to keep high-quality rice clean of objectionable materials, just ask our friends in the EU. The USDA inspectors can treat an ag importer not very well sometimes.

A Chinese legend, that could be true actually, has it that there was a great flood thousands of years ago and all the crops failed and flooded out. A mangy dog came crawling into town and was plastered with mud. A farmer dug into his fur and found a plant that look interesting so he planted the thing in his already flooded field and up came rice.

Think of the today’s commodity funds not as a dog, but a jackal. The funds will devour the shorts off price-weak grain futures markets like rice. They eat the wounded and provide a function of sorts in the pricing mechanism. They take a market down or they fluff it up.

The funds are coming back into rice futures, so the industry must face the challenge of not letting rice futures go to new highs or at least not for very long. Otherwise, more jackals will come down from the hills and gnaw. There are 5,000 to 8,000 jackals waiting to pounce on the weakness of the longs or the shorts in rice.

Between $9.50 and $11 per hundredweight futures ($3.80 to $4.50 per bushel, FOB Farm, Arkansas) the jackals may chew on the bearish shorts, unless you think Vietnamese paddy at 30-year highs, a snarling El Niño or the rice market in Brazil is bearish, or that corn is way too expensive at $3.50 per bushel.

Two other jackals are wandering about the Rice Belt this winter — ethanol and biodiesel. They are making ingredient buyers howl at night, folks. Think outside the rice box and watch your legs for any fund jackals if this rice market sags.

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