Farmers are preparing to plant a record rice crop that will boost inventories held by the world's biggest exporters to the highest-ever.
Harvests will climb 1.2 per cent to 472 million tonnes as the five largest shippers hoard 38 million tonnes, or a year of global imports, International Grains Council data shows.
Thailand may run out of warehouse space as reserves jump 40 per cent to a record 18.2 million tonnes, according to the United Nations. Prices in Vietnam, an Asian benchmark, will drop 6.6 per cent by December to US$377.50 a tonne, the lowest level since 2010, based on the median trader estimate.
Global food supplies are rising as the worst drought in the United States since the 1930s abates and the US Department of Agriculture predicts record corn and soya bean harvests. Expanding stockpiles may help contain world food costs that have tumbled 12 per cent from a record high in 2011.
Production of rice, the staple for half the world, is set to climb to a record high for a fourth season in 2013-14 while inventories in Thailand have almost doubled in three years, IGC data shows.
Jac Luyendijk, the chief executive at Swiss Agri Trading, which handles about 600,000 tonnes a year, said: "The price outlook in the long run looks rather bleak. We have to keep in mind that with these increasing rice stocks in Thailand, the problem will become bigger and bigger. Once Thailand unloads its stockpiles, we will look to very depressed rice prices for the years to come."
Global inventories are already rising 7 per cent to a record 171 million tonnes in 2012-13 as supply beats consumption for an eighth season, according to the UN Food & Agriculture Organisation. Governments from China to Thailand are buying from farmers at above-market rates, boosting harvests, it says.
Concepcion Calpe, the secretary of the organisation's inter-governmental rice group, said: "Production could well surpass the 2012 record and even outpace consumption." Harvests contracted only once in the past decade, she said.
Stockpiles in Thailand jumped after Prime Minister Yingluck Shinawatra started buying from farmers in 2011, fulfilling an election pledge to boost rural incomes. The programme may cost as much as 440 billion baht (HK$114.28 billion) this season, up from 376 billion baht, or about 3.4 per cent of gross domestic product, a year earlier, the World Bank estimates.
Samarendu Mohanty, a senior economist at the International Rice Research Institute, a group based in the Philippines, said: "Thailand will have to get rid of the surplus in the next few months to be able to continue the programme and purchase rice again. Thailand cannot continue to hold these stocks for a long time, due to quality issues and also the space."