Higher rice export prices in Thailand and Vietnam from a year earlier are likely to support fertilizer consumption in the main application season during May-September, but the onset of El Nino later this year could dampen demand.
Rice export prices in Thailand and Vietnam at the end of the first quarter of 2023 rose on the year, despite having moved downwards since January this year, according to latest FAO data. Thai 100pc B White rice prices were at $490.4/t fob in March, up from $435.50/t fob a year earlier, although down from $506.80/t fob in February and $532/t fob in January. Export prices for Vietnam's 5pc white ricerose to $439/t fob in March from $406.80/t fob a year earlier, but were down from $450.3/t fob in February.
Stronger rice export prices are likely to provide paddy farmers in Thailand and Vietnam with more cash to invest more readily in fertilizers this year, according to local market participants, which are confident that fertilizer demand will in turn recover this year to higher levels compared to last year. Domestic urea prices in Vietnam and Thailand have also stabilised recently after a sustained period of decline, encouraging buyers to start purchasing for their upcoming main application season.
But the El Nino weather phenomenon, which typically bring lower rainfall and higher temperatures to the region, is likely to emerge in the second half of this year, potentially reducing agricultural activity and curbing fertilizer demand.
Southeast Asia has experienced wetter weather conditions in the last two years thanks to the La Nina weather phenomenon, which has supported agricultural activity in the region. But high fertilizer prices, especially in 2022, had eroded affordability for most farmers, leading to weak fertilizer demand and high inventories across Southeast Asia last year.
The El Nino Southern Oscillation (Enso) weather phenomenon is expected to transit to the El Nino phase in southeast Asia during the second-third quarter this year, according to a forecast by Vietnam's meteorological and hydrological agency, bringing with it drier and hotter weather. The phenomenon will potentially create drought-like conditions that will hit the second half of the main application season, which typically lasts from May to September, some local importers said.
The southwest monsoon has begun in some parts of Thailand since mid-April, but the country's meteorological agency forecasts precipitation in June to be 5-10pc below that in a normal year. The Vietnamese monsoon was expected to be delayed by a month from mid-April to mid-May, but rainfall has begun in some parts, which has prompted demand from buyers.
