Vietnams key rice crop output falls more than expected on saltwater, rain

With lower output and renewed overseas interest, prices are hovering at around their highest in a year.

Saltwater intrusion and unseasonal rain have cut the paddy output in Vietnam's Mekong Delta by nearly 4 percent to 9.63 million tons this harvest, worse than previous official estimates, the government said on Monday.

Deep salt water penetration late last year coupled with rain during the crucial production period hit yields during the biggest of Vietnam's three annual crops, mostly in key growing provinces such as Long An, Dong Thap and Kien Giang, the General Statistics Office said in its monthly report.

The delta's plantations also shrunk 1 percent from 2016 to 1.54 million hectares (3.8 million acres), the report said.

Smaller rice output, coupled with fresh demand from Bangladesh, could further raise export prices in Vietnam, the world's third-largest exporter of the grain after India and Thailand, with quotations having already hit multi-month highs earlier this month.

The Agriculture Ministry previously estimated the Mekong Delta's winter-spring rice output to dip 2 percent from last year to 9.8 million tons. Most of the grain from the crop is for export.

Last week, Bangladesh said it was looking to buy 250,000-300,000 tons of Vietnamese rice in the near-term to offset a domestic shortfall after extending a government-to-government rice trade pact until 2022.

Indicative offer prices of Vietnam's 5-percent broken rice rose last week to $360-$380 a ton, free-on-board (FOB) basis, from $350-$352 at the start of May.

At $380, the price is at its highest since July 6, 2016.

While rising quotations may keep the market quiet and thus cut into Vietnam's exports in the coming months, steady purchases from China, the country's biggest rice buyer, have enabled a slight recovery in rice shipments so far this year, traders said, after shipments of the grain hit a nine-year low in April.

Vietnam's rice exports this month could reach an estimated 550,000 tons, bringing the January-May shipments to 2.33 million tons, up around 2 percent from the same period last year, the government's statistics office said.

Vietnam is forecast to export 5.6 million tons of rice this year, up 10 percent from 2016 but only around half the volume India and Thailand are each forecast to ship for the whole of 2017, the U.S. Department of Agriculture has said.