The Thai government has realized that you cannot be an exporter and buy votes from farmers by jacking up the rice price.

The United States tried this and failed at it miserably back during the 1980s. This failure resulted in the rice marketing loan program we now labor under. The result of high price supports is out-of-condition rice and rising stocks of rice. The alternative is to let the market trade.

When a government intervenes in a market, it becomes complicated and eventually expensive to someone, somewhere. You either subsidize someone or the customer pays for what he wants. I lean towards the second approach. Politicians trying to buy votes are lousy rice marketers in the United States or Thailand.

Thailand dropped the paddy or rough rice support equivalent for milled rice 100 percent B grade, which is the benchmark quality for Thailand, from about $189 per metric ton (about $8.57 per hundredweight) to about $176 per metric ton (about $7.96 per hundredweight).

Our world paddy indicator was recently posted at $179 per metric ton, so the 10 percent decrease initiated by the Thai government drops their market back to world price levels for paddy or rough rice around the world.

What does this do to the Thai 100 percent B price and what does this do to rice futures? That is a very good question.

As for the Thai market, say the 100 percent B could theoretically drop to $280 per metric ton. There are two problems with this price. First, we need to see if the farmers do a tractorcade on Bangkok, and second, the local Thai paddy price is already trading below the new support price, which takes effect this November.

I expect this market to relax with the new support price and make up some but not all of this price drop, perhaps $10 per metric ton down. My objective for some time has been about $290 per metric ton. But don’t wait around a for rice loan deficiency payment; it is highly unlikely this crop season in the United States.

The Vietnamese price is on fire and the Brazil price is on fire and Brazil is sucking rice out of small exporters in the north of South America right now. As for rice futures, the key for the U.S. rice market is the price of paddy rice delivered to Porto Alegre, Brazil, not to Bangkok, Thailand.

The price of paddy or rough rice in Brazil reached $250 per metric ton in October or about $11.33 per hundredweight ($5.10 per bushel). So a Thai rice price of $290 per metric ton (100 percent B) with a tip to the exporter may soon be deliverable to Brazil at about $380 to $400 per metric ton, well below current cash milled prices in Brazil.

The world rice market is so much smarter now than it was four years ago during the last El Niño when Brazil paddy rice prices rose to a high of $295 per metric ton ($13.38 per hundredweight or $6.02 per bushel). Prices are running up during planting rather than harvesting as they did in Brazil in 2003.

The U.S. rice market is now the least clear of all the rice markets around the world. Vietnam is rising, Brazil is rising, the EU paddy price is rising, and the Thai price support is getting realistic. Probably the worst part of the market is the edgy and dark outlook for U.S. exports.

The worm in the apple is the GMO problem. For many countries, GMO means two things, more money in the rice farmer’s pocket and less hunger. That is not how some finicky, well-fed and anti-U.S. Europeans see it; but this is how most of the Asian rice market view GMOs, not necessarily in Beijing but in a hundred thousand hamlets outside of Beijing.

The Arkansas price has more to do with Brazil than Rotterdam or Bangkok over the next 10 months. El Niño is a Spanish word, not an Asian word, because it hits hardest in South America. I would bet you a churrascaria steak dinner that Brazil is just as important to U.S. rice futures this winter.

e-mail: milo@firstgrain.com