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Thailand tends to swap sugar for rice

Thailand can prioritize the production of rice, reduce sugar and this will help to restore international prices of the sweetener.

Thai producers have plenty of reasons to migrate to the rice: the market should record the second consecutive deficit this year and, despite cereal prices have continued under pressure in recent months, due to the high global inventories, prices should improve.

Rice tends to replace part of sugar production for another reason: the sweetener passes for the fifth crop followed by surplus.

“Many agents in this market have changed his mind and becoming bullish for cereal prices in view of the situation of Thai stocks and the probability of occurrence of El Niño”, says João Paulo Botelho, an analyst at INTL FCStone Consultancy.

In addition to the climatic effect, the precarious situation of grain reserves could accelerate a shift in the international prices of this product. According to the consultancy, this could help in the back of a rise in world sugar prices trend, which are the in the lowest levels since 2008.

But how would this be possible?

Through a change in the current policy of the Thai government, that could reduce its support to the production of the sweetener, thereby helping decisively on this reversal in the next years.

Read what says the analyst of INTL FCStone, “the oversupply framework in the international market already has been reversing, in view especially of the demand increase. In our estimate, the surplus of the crop 2014/15 will be only 502 thousand tons.”

Comes and goes

Over the last years, the rise in rice stocks in Thailand – biggest global cereal exporter – and low product prices in the international market led the country’s government to encourage more production of cane sugar, to reduce the “rice mountains” in which the country was mired.

However, after the excess product in 2012/13, Thai cereal stocks should end the 2015/16 crop at just 6,3 million tons, down from over 50% in just three years.

Meanwhile, sugar reserves should continue rising and reach the maximum of 6,2 million tons, more than doubling over the four crops ago.

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