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Grains: World Markets and Trade
October 1997
A great deal of attention has recently been focused on the
fall of the Thai Baht, Indonesian Rupiah,Philippine Peso, as well
as other currencies in Southeast Asia. Their decline against the
U.S. dollar has sparked fears that U.S. grains will be unable to
compete in these rapidly growing markets. A closer look, however,
shows the likelihood of minimal impact on grain exporter market
share. Moreover, while most Southeast Asian currencies have
fallen hard versus the dollar, if gauged against the Japanese
Yen- currency of the primary investment and trading partner of
the region- they can be viewed as having returned to a more
historical norm.
An overview of the relative strength of key currencies shows that
while the U.S. dollar has appreciated significantly against these
currencies, the Australian dollar- currency of our principal
grain competitor in these markets- has appreciated even more.
Similarly, the currencies of other major competitors in wheat and
coarse grain markets have all maintained their strength against
the U.S. dollar. So while local currencies have depreciated, no
major exporter has gained a competitive edge.
Certainly for a Southeast Asian importer, a landed cargo of grain
from the United States is going to be far more expensive (in
local currency) than it would have been just months ago. Nine
months ago corn importers in the Philippines were willing to
import U.S. corn with a 100% duty rate because it was still less
expensive than locally produced corn. Currently, with the duty
reduced to 30% on 300,000 tons of corn, U.S. corn delivered to a
Philippine feed mill would be roughly on par with the price of
locally harvested corn.
Nonetheless, prevailing prices for most grains are lower now than
they have been in the past two years and this will serve to
partially mitigate the appreciation of exporters' currencies.
With no regional wheat production, importers have little choice
but to import in order to meet growing demand. Regional corn
production is insufficient to meet the rapidly increasing demand
of the regional feed industry.
While the impact on grain imports by the region may be
limited, the impact on the export position of Southeast Asian
nations is profound. In the graph above, the export price of Thai
rice has been indexed to the price of U.S. long grain rice,
although there are few markets in which U.S. and Thai rice
compete head-to-head. Thai competition comes mainly from Vietnam,
a low cost supplier.
Buoyed by a strong Baht, the price of Thai rice has risen
steadily for years, with price differentials between U.S. and
Thai rice being relatively stable while premiums for Thai rice
(vis a vis Viet rice) continued to grow, reaching 40% or more of
the FOB value of top grade Vietnamese rice. Consequently, by
early 1997 Thai rice was almost completely uncompetitive with
Viet rice in price sensitive markets. Following the Baht's
devaluation, Thai rice prices have declined precipitously, and
are currently within about 10% of Viet export values.
While the premium for U.S. rice has grown, U.S. exports remain
largely unaffected. The impact for Thailand has been substantial,
allowing a resumption of shipments to exports markets (such as
Brazil and West Africa) where Thai rice had long been absent due
to its high price.
For more information contact Morgan Perkins at (202) 720-2231.
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