Rice prices accelerate after India’s export restriction order, which stocks benefit?

Many enterprises with a large proportion of rice exports will benefit from the upward trend of rice prices.

Rice prices soar due to India restricts rice exports

Since the beginning of 2021, rice prices have corrected about 45% from a peak of ~$570/ton in 6 months and then fluctuated between $390-490/ton from September 2021 to present. despite rising food prices. However, currently in the market rice prices are trending higher after India’s export restriction order.

Accordingly, at the beginning of September, India banned the export of broken rice (accounting for 11% of total exports) and levied a 20% tax on other rice varieties (except basmati rice and parboiled rice) (accounting for 18% of total export turnover). export). India exports rice to more than 150 countries and contributes about 36.7% to the total global rice trade, so a drop in Indian export orders is likely to put pressure on and drive up world rice prices. gender increases. When India banned exports in 2007, global rice prices rose to a record high of around $1,000 per ton.

Besides, the global rice supply is also facing risks due to severe weather conditions in major exporting countries. Unlike other grains, the price of rice has gone against the trend of increasing food prices in the past two years thanks to a bumper crop and large inventories in exporting countries.

However, recent extreme weather in the major rice exporting countries in Asia (which produces about 90% of the world rice production) is likely to change the price trend. Lack of rain in India, drought in China and floods in Bangladesh have limited yields and are certain to reduce production this year.

Vietnam is the world’s third largest rice exporter, after India and Thailand, with 7.8% of global trade and is the largest exporter to China with a 24.5% market share. Indian rice prices are in a weaker competitive position due to higher tariffs, which in turn pushes buyers to shift to Thai and Vietnamese rice.

In the first eight months of 2022, the value and output of Vietnam’s rice exports reached 2.3 billion USD respectively, up 9.9% and 4.8 million tons, up 20.7% over the same period. China is Vietnam’s second largest rice export market, after the Philippines, accounting for 12% of total rice exports in the first eight months of 2022.

Many rice exporters benefit

According to VNDirect, three enterprises LTG, PAN and TAR with a large proportion of rice exports will benefit from the upward trend of rice prices.

For LTG, the analyst team believes that the business will directly benefit from rice exports thanks to being one of the rice distributors to both key markets at this time, Europe and China. With the development orientation focusing on the food segment, the revenue proportion of the rice segment will reach 39% in 2021 (2020: 28%) and 57% in the first half of 2022. Despite the low gross profit margin of the segment ( 2-3%), but this will be improved by higher export prices.

The analyst team expects an increase in export rice output will lead to contracts with farmers and expansion of raw material areas. Thereby, it will boost the revenue of the pesticide segment as well as the plant variety segment of LTG.

For TAR, it can benefit from China’s production reduction and India’s export restriction due to drought. Rice trading is TAR’s main business, with exports accounting for nearly 15% of total revenue. In which, China is the main rice export market of this enterprise with a proportion of up to 27% of export revenue. Therefore, China will increase rice imports from Vietnam which will be the driving force for TAR to increase output. export.

Moreover, an increase in export rice prices is expected to help improve gross profit margin in this market, which is considered to have a low profit margin compared to the European market.

For PAN, it will benefit directly from Europe’s production reduction and India’s export restriction due to drought. Currently, the agricultural segment has become one of PAN’s key industries when contributing 19% to total revenue and 39% to total gross profit. The decline in European rice production will be a factor helping to boost exports. In addition, the increase in export price of rice is expected to help increase the gross profit margin of the rice segment.

Ha Anh/Market life