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Thai Rice Crop Loss May Have Little Impact on Price: Analysts

In spite of the Thai government's warning that the world's largest exporter of rice could lose as much as a quarter of its crop because of the floods, analysts tell CNBC the potential shortfall is unlikely to impact prices.

A cement factory sit in flood waters October 20, 2011 in the neighboring provinces of Bangkok, Thailand. Hundreds of factories closed in the central Thai province of Ayutthaya and Nonthaburi with flood waters coming closer to threatening Bangkok. Around 320 people have died in flood-related incidents since late July according to the Department of Disaster Prevention and Mitigation, with Thailand is experiencing the worst flooding in 50 years with damages running as high as $6 billion.
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A cement factory sit in flood waters October 20, 2011 in the neighboring provinces of Bangkok, Thailand. Hundreds of factories closed in the central Thai province of Ayutthaya and Nonthaburi with flood waters coming closer to threatening Bangkok. Around 320 people have died in flood-related incidents since late July according to the Department of Disaster Prevention and Mitigation, with Thailand is experiencing the worst flooding in 50 years with damages running as high as $6 billion.

Abah Ofon, Agricultural Commodities Analyst, Global Research at Standard Chartered bank, says there's adequate supply of rice globally and within Thailand to pick up any disruptions from the floods in the short term.

"It's not all doom and gloom," Ofon says. "Yes, the flooding has potentially affected a large swath of the crop, but in terms of actual stocks that are being held in Thailand and out of Thailand, in the export market, I think there is enough to be able to lift demand."

Other Asian rice exporters India, Vietnam and Burma will likely fill in the gap, Ofon adds.

Thai officials estimate about 6 million tons of unprocessed rice will be destroyed by the country's worst floods in 50 years. Thailand accounts for about 30 percent of the grain's global trade.

However, the United States Department of Agriculture (USDA) estimates Thailand holds over 5 million tons of rice stock. In addition, Ofon says the off-season crop that harvests in December could also help narrow the shortfall.

Avtar Sandu, Senior Manager, Asian commodities, at trading firm Phillip Futures, believes the price of rice is more affected by the Thai government's recent rice buying plan than by the floods.

As part of an election pledge, Thailand's new government led by Prime Minister Yingluck Shinawatra, started buying rice at a higher price from farmers in October, pushing up the international price for the grain.

"The stocks are there... It's well stocked, but still the price goes up because of government policies," says Sandu. He adds that rice prices had already risen before the floods.

Ofon says Thailand's rice prices have already peaked in the fourth quarter at $630 a ton and will actually average around $615 a ton for the rest of the year before trending further downward next year.

"I think we have peaked in terms of where rice prices are going be in the fourth quarter," he says.

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