Bright outlook for Thai agricultural exports (03-01-07)
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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If the baht remains stable, Thai export revenue from agricultural commodities is projected to increase next year, by substantial amounts for some commodities.
Today's article looks at 2007 revenue projections for different agricultural commodities in Thailand.
These projections depend on a baht that doesn't appreciate a lot.
The question remains: Will the baht remain stable? Will movements in major world currencies such as the US dollar, Chinese yuan, the Euro, and Japanese yen cause long-term baht appreciation in the near future?
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What proportion of export revenue next year is projected to come from rice exports?
(Make a calculation)
2. What regional factors within Southeast Asia in 2007 are likely to boost Thai rice exports?
3. Is milled rice output greater or less than paddy output? Why?
4. What proportion of its rice crop is Thailand likely to export in 2007? (Make calculation)
5. What might happen to Thai rice exports if the baht appreciates further?
6. How much is the price of rubber projected to rise in the near future? What is the basis for this projection?
7. What is the year-on-year differential in rubber prices in the futures market?
8. What factors might have an effect on rubber prices and export revenue next year?
9. In what forms is tapioca exported from Thailand?
10. Are tapioca exports projected to increase or decrease this year? By how much?
11. What events in Europe have lead to new uses for tapioca in Europe?
12. How have oil prices increased the potential value of tapioca as a Thai crop?
13. What is expected to drive higher shrimp exports this year?
14. What factors may decrease profits from chicken exports this year? (Use inference)
15. What precautions are Thai exporters taking to protect against the possibility of bird flu?
Bangkok Post Article: January 3, 2007
AGRIBUSINESS / MARKET OUTLOOKFarm exports set to boom this year despite strong baht
PHUSADEE ARUNMASThe export outlook for Thailand's key farm products remains strong this year, with the possibility of at least 400 billion baht in revenue for the country despite the appreciating baht and projected economic slowdowns in key buying countries. Of the total export value, 100 billion baht could come from exports of 8.5 million tonnes of rice, thanks to higher world demand and falling supplies in other rice-exporting countries.
Chookiat Ophaswongse, president of the Rice Exporters Association, said the country's rice exports in 2007 would benefit from several conditions including a weaker performance of archrival Vietnam.
Rice production in Vietnam, the world's second largest rice-exporter behind Thailand, is expected to decrease as a result of a plague that has destroyed many fields. As a result, the country was estimated to ship 4.5 million tonnes of rice in 2006, slightly below 4.7 million tonnes in 2005.
On the demand side, the Philippines and Indonesia will likely import up to two million tonnes of rice to compensate for local shortfalls following severe drought.
According to Mr Chookiat, Thailand's output from the latest crop is estimated at 29 million tonnes of paddy or 18-19 million tonnes of milled rice. Together with more than four million tonnes in the government's stock, it is possible Thailand could export up to 10 million tonnes in 2007.
The only factor that can dim the prospect is the baht. "If it's too strong, prospective buyers could turn to less expensive grains," he said.
Also showing good prospects is rubber, for which strong demand will likely keep prices high early this year, although the outlook for the rest of the year remains uncertain.
Luckchai Kittipol, president of the Thai Rubber Association, said rubber prices would rise by 5% year-on-year in the first quarter of 2007. Based on advance sales for first-quarter delivery, ribbed smoked sheet No. 3 (RSS3) rubber is being quoted at US$1,900 per tonne, compared with $1,600 last year.
But the total export value of the commodity this year might fall short of $5 billion this year thanks to reduced speculation and easing oil prices.
"Rubber prices for the rest of this year are uncertain. There remain certain factors that could affect supply such as El Nino and the US economy," Mr Luckchai said.
However, he expects rubber exports this year to rise slightly from the estimated 2.6 million tonnes shipped last year.
For tapioca products, traders foresee improvements in both export volume and prices.
Sukij Wanglee, president of the Thai Tapioca Trade Association, is confident that the country could earn 23 billion baht this year from exports of five million tonnes of tapioca chips and pellets, up from four million last year, and 2.4 million tonnes of starch, up from two million in 2006.
"Drought in Europe will force users there to use chips and pellets as raw materials to mix as animal feed," he said.
He added that the future of tapioca looked bright, as several ethanol plants that use it as raw material are scheduled to be completed over the next two years.
Higher demand could definitely raise the prices of cassava from 1.30 baht to 1.40 baht per kilogramme.
Likewise, chicken and shrimp look set to show strong export performances.
Shrimp exports last year were estimated at 340,000 tonnes or 80 billion baht. The export value is expected to increase by 20% this year, backed by higher yields of white shrimp, said Somsak Paneetatyasai, president of the Thai Shrimp Association.
Nopporn Vayuchote, executive vice-president of Betagro, a leading chicken exporter, said that although the chicken export outlook remained positive, exporters would feel the pinch from higher production costs, mainly more expensive animal feed, maize and other grains.
He said the prices of maize rose more than 30% over the past year to seven baht per kilogramme as a result of drought. Maize accounts for half of all ingredients in animal feed.
"Although export prices will remain stable in 2007 at around $3,000 per tonne, the industry is not attractive and I foresee few investments next year," said Dr Nopporn.
Earnings from chicken exports in 2007 are forecast to increase slightly to 93 billion baht from 310,000 tonnes of shipments, compared to 87 billion baht and 290,000 tonnes in 2006.
Dr Nopporn said he was less worried about bird flu, which still haunts the industry, as nearly all of Thai chicken exports were heat-treated products.
Vocabulary
year-on-year - compared to the same period last year
("...rise by 5% year-on-year in the first quarter of 2007")
rival - competitor
archrival - very important competitor for a long time
a plague - a serious disease that kills many people (or plants in this case)
to compensate for - pay money for a loss or injury, reduce the bad effect of something (See Words in Business News)
paddy - rice still in the husk, gathered or still in the field, also means rice field.
milled rice - rice that has been dehusked and processed into a product ready to sell in stores
dim the prospect of x - make x less likely to happen
prospective buyers of x - people who might buy x in the future
ribbed smoked sheet No. 3 (RSS3) rubber - a standard rubber commodity that can be traded on commodity exchanges
El Nino - a global weather phenomenon that can have an effect on crop harvests around the world through droughts and flooding (See Wikipedia)
cassava - a plant in tropical and subtropical regions grown for its edible starchy tuberous root, a major source of carbohydrate. (See Wikipedia)
tapioca - pieces of the dried and crushed root of the casava plant (See Wikipedia)
chips - a small piece (that has been broken off a larger piece)
pellets - a small piece (with a hard ball shape)
a starch - a thick liquid
animal feed - food for animals (in large quantities)
ethanol - ethanol fuel is an alternative to gasoline that can be made from renewable agricultural commodities like corn or tapioca (See Wikipedia)
feel the pinch - to find business, life, or work difficult because of a lack of money.
maize - a kind of corn (made into flour and fed to animals) (See Wikipedia)
bird flu - (See Wikipedia on Avian Flu)
heat-treated products - products are heated to kill virus and bacteria that may be in the product
Answer Key:
1. What proportion of export revenue next year is projected to come from rice exports?
(Make a calculation)
25% or one fourth. (100 billion / 400 billion)
2. What regional factors within Southeast Asia in 2007 are likely to boost Thai rice exports?
Vietnam's rice harvest has been reduced by disease and that of the Phillipines and Indonesia by a severe drought.
3. Is milled rice output greater or less than paddy output? Why?
Milled rice output is less than paddy output.
"Paddy" is rice that is still in the husk.
"Milled rice" is rice that has been dehusked, processed, and is ready to sell in a store.
Paddy is heavier than milled rice because it still has its husk.
4. What proportion of its rice crop is Thailand likely to export in 2007? (Make calculation)
Roughly 43%-45%. (10 million tonnes / (18-19 mill + 4 mill))
5. What might happen to Thai rice exports if the baht appreciates further?
Prospective buyers might turn to less expensive sources of rice.
6. How much is the price of rubber projected to rise in the near future? What is the basis for this projection?
5%. The price of rubber is projected to "rise by 5% year-on-year in the first quarter of 2007."
7. What is the year-on-year differential in rubber prices in the futures market?
19% (= (1900-1600) / 1600 = .1875)
8. What factors might have an effect on rubber prices and export revenue next year?
"Reduced speculation and easing oil prices" as well as El Nino weather effects around the world and the helth of the US economy could all have an effect on rubber prices and Thailand's rubber export revenue.
9. In what forms is tapioca exported from Thailand?
In solid form as "chips and pellets and in liquid form as "starch".
10. Are tapioca exports projected to increase or decrease this year? By how much?
Tapioca exports are projected to increase this year.
Chip and pellet exports are projected to increase by 25% (= (5 - 4) / 4)
Starch exports are expected to increase by 20%
(= (2.4 - 2) / 2)
11. What events in Europe have lead to new uses for tapioca in Europe?
Drought has led farmers to use tapioca chips and pellets as animal feed.
12. How have oil prices increased the potential value of tapioca as a Thai crop?
The gasoline substitute ethanol can be manufactured from tapioca, but the construction of ethanol plants has not finished yet.
13. What is expected to drive higher shrimp exports this year?
Higher yields of white shrimp.
14. What factors may decrease profits from chicken exports this year? (Use inference)
Profits may decrease from increased production costs (profits = revenue - expenses or costs). Production costs may increase because of more expensive animal feed, maize and other grains.
15. What precautions are Thai exporters taking to protect against the possibility of bird flu?
"Nearly all of Thai chicken exports were heat-treated products."
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