* Farm ministry sees main crop paddy output 27 million tonnes
* Forecast is up from 26 million in previous year
* Trial distribution to poor villagers raises quality concern
By Apornrath Phoonphongphiphat
BANGKOK, May 13 (Reuters) - Sacred white oxen at Thailand's ploughing ceremony on Monday predicted a big rice crop, an ominous sign for a government running out of space to store vast stocks after two years of buying at above market prices to help farmers.
Thailand's agriculture ministry forecasts paddy output of 27 million tonnes in the 2013/14 main crop in November, up from 26 million tonnes a year earlier, an official at the ceremony said.
By choosing maize and grass over other delicacies, the oxen also signalled large harvests for the May-November season, according to soothsayers.
A state policy of paying farmers some 50 percent above market prices, and its unwillingness then to sell the rice at a loss, has already eaten up available storage space, heaping pressure on the government to decide what to do.
A trial donation last last month of 40 tonnes as humanitarian aid to poor villagers in Phitsanulok province, which a commerce ministry official said would be followed by a few millions of tonnes more, drew complaints it had been stored too long.
"I don't know why the government gave it to us as no one can eat this rice," said Chaew Malila, 60, in Beung Phra district in Phitsanulok, almost 400 km north of Bangkok.
Villagers who received a 4-kg bag per family, said the rice had a bad smell, yellowish colour and insects in the sacks.
A government official said the complaints were exaggerated.
"We have to admit that there were some certain amount of rice that was decaying as it was kept in stocks since 2011, but this is just a small amount and we don't hear any complaint about rotting rice at all," he said.
The intervention scheme for buying rice from farmers, popular in rural areas where the government is keen to retain political support, has led to about $6 billion in losses so far and projections are for funding needs of more than 100 billion baht ($3.37 billion) in the upcoming fiscal year.
Thailand, running a budget deficit of 300 billion baht, will probably be able to fund it - possibly through a new large loan from the state-backed Bank of Agriculture and Agricultural Cooperatives - but the problem keep piling up.
Milled rice stocks have risen to 17 million tonnes, almost half of global trade of around 38 million tonnes. A big harvest could add around 10 million tonnes to stockpiles this year.
Thai officials have suggested renting air force hangars for storage and the government is considering building more silos, although the cabinet would have to approve the extra spending.
The April rice donation is a sign the government is running out of options, traders and industry observers said.
"It was just an excuse the government used to avoid losing face as it failed to sell the stocks, while global prices keep falling because demand remained thin. It had to hurry to offload the rice as the next crop is coming," said Warong Dejkitvikrom, a member of parliament with the opposition Democrat party.
A government official said the donation was just one of several strategies to manage stocks, in addition to government deals and tenders to exporters.
Thailand exported 8 million tonnes of rice in 2012/13, according to the U.S. Department of Agriculture, which has its exports will rise marginally to 8.5 million tonnes next year.
India dethroned Thailand to become the world's biggest exporter of rice in 2011/12 as the intervention scheme made Thai rice uncompetitive in the world market. India has forecast normal monsoon rains to boost grain supply prospects in 2013. ($1 = 29.7100 Thai baht) (Editing by Amran Abocar and Anthony Barker)
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