Indonesia sees higher 2011 rice output leading to surplus-UPDATE 2

INDONESIA-GRAINS/ (UPDATE 2, PIX)

* Ample rice supply eases pressure off regional prices

* Temporary rice shortages still possible later in year

* Corn output seen down 2 pct, soybeans up 3 pct (Updates with details, quotes)

By Adriana Nina Kusuma and Neil Chatterjee

JAKARTA, March 1 (Reuters) - Indonesia sees rice output rising 1.4 percent this year, leading to a surplus that will reduce the likelihood of imports by Southeast Asia's biggest economy, easing fears over escalating prices of the food staple.

Ample regional supplies and the reduced prospect of buying from Indonesia, which surprised markets with bumper rice imports in January, may further take the pressure off prices for a grain that has lagged a rally in other commodities and bring some relief for countries grappling with food inflation.

The statistics bureau's first crop forecast for this year of 67.31 million tonnes of unmilled rice was below the agriculture minister's December expectation for 68.8 million tonnes in 2011, but up from 66.41 million tonnes in 2010.

This will lead to a 4.29 million-tonne surplus this year, it said on Tuesday. State procurement agency Bulog said on Monday it was no longer planning to import from international markets and its stockpiles were now sufficient for the next six months.

Ker Chung Yang, investment analyst at Phillip Futures in Singapore, said Indonesia had finished stockpiling rice as it saw higher output.

"This means we are unlikely to see Indonesia become a major rice importer this year," said Yang. "This could potentially weigh on rice price as the Philippines is also buying less rice this year."

The Philippines said on Monday it may need a third as much rice as last year from markets, helping reduce bullish sentiment on rice given bumper harvests are also seen in exporters Thailand and Vietnam in coming months.

The healthy regional supply picture is reflected in prices for benchmark 100 percent B grade white rice <RI-THWHB-P1> from Thailand, the world's biggest rice exporter, of $535 a tonne, unchanged from last week and steady from the start of the year.

Indonesia in January suspended import duties on rice, soybeans and wheat as part of government efforts to fight food inflation. The measures may have worked, as raw food prices fell 0.3 percent in February from the previous month, leading overall inflation to ease, data showed on Tuesday.

"In February we saw deflation in foodstuffs. This was the first time in four years," said Rusman Heriawan, head of the statistics bureau.

Raw food prices were still up 14.8 percent in February from a year ago. Protests over higher prices were seen as a major factor in the ousting of Indonesia's long-term autocratic ruler Suharto in 1998, and investor worries over inflation led to a sell-off in Indonesian stocks and bond in January.

Despite the higher rice production forecast, weather remains an unpredictable variable and unusually heavy rains in recent months have hampered crops and miners, leading the country to miss many of its commodity output forecasts last year.

"We have doubts on 4.3 million tonnes of surplus. If they were confident of such a surplus, then what was the need to suspend duties and imports such large quantities of rice?" said Yang.

The expected rice surplus was based on production of milled rice at 37.8 million tonnes, and consumption by Indonesia's 240 million people of 33.5 million tonnes.

Rusman said the surplus was an end-of-year figure, meaning that there still could be temporary supply shortages later in the year, adding the government must manage rice stocks well in order to control prices.

Indonesia's monthly rice consumption is 2.7 million tonnes, and the country has six months of rice surplus and six months of deficit, said Udhoro Kasih Anggoro, Director General of Food Crops at the Agriculture Ministry.

"The problem is how to distribute rice properly throughout Indonesia in order to meet people's needs," Anggoro said. "That's why rice stock management is very important."

STILL IMPORTING CORN, SOY

Global prices for other soft commodities have surged, with cocoa at a 32-year high and corn posting its third monthly rise.

For corn, Indonesia sees production at 17.93 million tonnes this year, down 2 percent from 18.36 million last year, the statistics bureau forecast.

The country expects to import more than 2 million tonnes of corn this year, up from an estimated 1.5 million tonnes in 2010, the chairman of the Indonesian Feed Mill Association said earlier this month before the latest forecast.

A number of corn-producing areas have suffered from failed harvests because of bad weather, while rising animal feed production is boosting corn demand. Costly wagyu beef is now a regular item on restaurant menus in the capital, as incomes rise for an emerging middle class.

For soybeans, popular as a cheaper substitute for meat, production is seen at 934,000 tonnes this year, up nearly 3 percent from 908,110 tonnes in 2010. Indonesia imports 70 percent of its annual soybean requirements, mostly from the United States, the world's top exporter.

(Source: http://www.forexyard.com/en/news/Indonesia-sees-higher-2011-rice-output-leading-to-surplus-2011-03-01T113112Z-UPDATE-2)