Iraq emerges to dominate Thai white rice market so far in 2022

Even less than a year ago, few people could have imagined that the largest export market for Thai rice in 2022 would be Iraq.

By mid-2021, the Iraqi government had been de facto boycotting Thai rice for seven years. While in part this was due to memories of the quality issues with the last Thai rice cargo received by the Iraqi government, in recent years this has also stemmed from highly uncompetitive Thai white rice prices.

This change in fortune came on the back of two factors: Thai prices decreasing dramatically in the first half of 2021 following an entire year of being priced far above Asian origins and a change to the Iraqi government's procurement processes. While for many years the Iraqi government had held private tenders to source rice for its public distribution scheme, this changed in June 2021 when the Ministry of Trade divested this responsibility to a third party, al-Owais.

Private negotiations

Unlike the government, al-Owais has shown no appetite for tendering. Instead, the importer has displayed a preference for buying via private negotiations with established traders. In the immediate aftermath of gaining its new responsibility, al-Owais made some safe purchases, buying both US and Uruguayan rice, which have been staples for the Iraqi market in recent years.

However, not long after these purchases, an initial sale of 40,000 mt of Thai 100% Grade B white rice was reported in early August. Then followed another and another, with sales steadily building as 2021 drew to a close. At this point, the trade was limited to ADM -- a regular supplier to Iraq via tenders -- with backing from Tanasan, a Thai mill.

As these purchases increased and Iraq clearly developed a renewed taste for Thai rice, with the number of counterparties also growing. LDC emerged as a new supplier for Iraq in early 2022, with both trading companies now using multiple mills to fulfill Iraq's requirements.

Thailand exported 293,362 mt of rice to Iraq between January-March, according to the commerce ministry, making Iraq the country's largest export destination during this period. Based on assertations from sources that around three shipments of Thai rice -- each containing approximately 40,000 mt -- are leaving for Iraq each month, it can reasonably be assumed that Thailand will have exported over 500,000 mt to Iraq by the end of May.

Sources have confirmed that these shipments have been relentless in recent months. According to one source close to these trades, exporters have been "loading basically nonstop," with others commenting that the white rice market is being dominated solely by covering shipments to Iraq.

Thai quality

Since the end of 2021, these shipments have had a significant impact on prices. From starting 2022 assessed at $394/mt FOB, Platts assessment of Thai 5% broken white rice has increased by $55/mt to a recent high of $449/mt FOB on May 9, before retreating slightly since then. This was the highest assessment since al-Owais gained the authority to buy for the Iraqi government in June 2021.

Despite the recent uptick in pricing on the back of the sales, there are few signs that Iraq is looking elsewhere. One trader remarked that the reason Thai rice is now so popular in Iraq is the country's ability to meet the required specification. "Thailand can do so easily and much better" than other Asian origins, the source said, adding that Thai rice can also "match US quality closely."

Other sources have said that while Pakistani and Indian rice may be more competitively priced than Thai, they do not come close to being able to meet Iraq's 6.7mm minimum average grain length requirement, even when regular white rice is mixed with varieties typically reserved for blending with Basmati.

Future sales

The main questions going forward are whether the pace of these sales is sustainable and when Iraq may curb its purchases. According to a spokesperson for the Thai Rice Exporters Association, recently quoted in the local press, the organization anticipates that "at least 400,000 mt" will be shipped to Iraq by the end of 2022.

However, as mentioned, this soft target from TREA has likely already been smashed and sources close to the sales to Iraq project that rice exports to the country in 2022 will total around 1 million mt. Multiple sources in the Thai rice market backed this expectation and a broker said May 24 that if Iraq keeps buying "at this rate, it will happen."

Sales for the coming months are already being negotiated, with one exporter involved in trade to Iraq saying that three or four 40,000 mt cargoes are expected to be shipped in both June and July.

One thing all sources agree on is Iraq's current role in supporting Thai prices. An exporter said that "as long as Iraq keeps buying, [the] market is still bullish."

Iraq's recent high-volume demand and the support it has given to prices have forced price-sensitive West African buyers out of the market. In effect, Iraqi buying has temporarily balanced supply and demand, picking up the slack left by West Africa's absence. However, a major trader said that If Iraqi demand were to disappear, Thai 5% broken white rice pricing would likely crash back to $380-$385/mt FOB, at which point regular West African purchases would resume.

Any further price increases in the Thai market are unlikely to dissuade Iraq from new purchases, with one source saying that despite the recent bullish run of the market "Thai is still cheaper than their usual origins," such as the US and Uruguay. Even if FOB price spreads narrowed, the geographical proximity of Thailand to Iraq, compared with Americas origins also works in Thailand's favor.

Iraq's shift to mainly procuring Thai rice in H2 2021-H1 2022 is already disrupting demand dynamics in various rice markets. Sellers in South America have lost a key market, while price-sensitive Thai rice buyers are considering cheaper Asian alternatives. Whether or not this shift will be long-term, however, is yet to be seen.