LITTLE ROCK, Ark. – USDA’s June acreage report indicates that U.S. rice producers have a potential record production year in the making. The question I keep asking myself, where’s the demand for a huge 2004 U.S. rice crop?
On the one hand, we all understand that with world rice stocks as a percent of consumption the lowest they’ve been since 1974, then there’s the potential for a strong price movement.
Yet on the other hand, with 2004/05 global trade representing only 6.3 percent of global milled production the market is seemly unmoved by tight stocks. This and governmental intervention continues to hold Asian export prices well below the U.S. export prices. This Asian governmental intervention whether for food security or protectionistic reasons is a key reason the market is slow in pricing in the risk of a shortage.
Looking at the past decade, long grain rice prices have been their strongest during periods of robust global economic activity compounded by climatic weather (El Nino) event, which reduces global rice production. Remember Central and South America, especially Brazil in the late 90s?
Brazilian and, in general, Latin America demand for rough rice during this period had a dramatic impact on U.S. rice prices. Why? The U.S. was the only major exporter of rough rice because most countries protect their value-added milling infrastructure by exporting only milled rice.
Looking at the past 14 months then one sees recent rice price strength much the same as before. The global economy strengthened throughout 2003 until by January of 2004 it had become very strong economically. Couple this with Latin America’s weather-related production shortfalls and once again strong demand for American rough rice emerges. The Latin American demand for rough rice and especially the added demand from Brazil were strong price movers.
Today, with 2004/05 global production projected to be up, with Latin American including Brazilian rice production up and with their imports projected down, with a potential U.S. record rice production, with China slowing their economy and making talk about increasing rice production, and with no major global weather problems, then presently one has to be concerned about softness in the rice market. Moving forward watch the following:
- First, Strength of the Global Economy: The global economy is strong and building momentum toward sustainability. This will strengthen the demand for rice.
- Second, Global Production: Expanding global production could outrun demand, which implies the low price supplier will be the provider of choice. The reality is global rice competition is not very well understood in an increasingly open global market.
- Third, Government Intervention: Food security and economic growth are a top priority to developing and transitioning economies, so don’t underestimate their resolve to manage their affairs. China and India are good examples. This will increase the global supply of rice.
- Fourth, U.S., Thailand and Vietnam Milled Rice Prices: The price of rice in the Western Hemisphere significantly exceeds our Asian competitors, which is limiting our ability to compete in the milled global rice export market. For the 2002/03 marketing period U.S. long grain rice in the export market was selling for an average of $213 per metric ton, similar Thai rice brought $199 per metric ton and Vietnam rice brought $182 per metric ton. For the 2003/04 marketing period, which will end in July, U.S. rice is estimated to average $342 per metric ton, Thai $219 per metric ton and Vietnam rice $208 per metric ton.
- Fifth, Chinese Rice Imports: China’s stocks and rice needs are a real unknown. If China has to purchase rice from Thailand and Vietnam during the 2004 marketing period to meet their food needs, then Thailand and Vietnam many not be able to meet their traditional customer demand. These foreign customers would look to other sources for their milled rice with the United States having available supply.
- Sixth, Weather: A major catastrophic weather event has not occurred in a number of years. A strong global economy, tight global rice supplies and a disruptive weather occurrence would be a pricing opportunity for our producers and industry.
U.S. long grain rice planted acres is estimated at 2,552,000 acres. This is a 220,000-acre increase over last year for a 9.4 percent increase. The estimate is a 26,000-acre increase over the March prospective planting estimate. Louisiana increased their acreage from 435,000 acres in 2003 to 530,000 in 2004 or a 21.8 percent increase, followed by a 16.7 percent increase in Texas, an 8.6 percent increase in Missouri, a 6.2 percent increase in Arkansas, and no change in acreage for Mississippi or California.
U.S. medium grain rice planted acres is estimated a 752,000 acres, an increase of 105,000 acres over 2003 or a 16.2 percent increase. The March 31 prospective planting estimate was 693,000 acres. California increased their medium grain acreage by 110,000 acres to 570,000 acres, while Arkansas reduced their acreage 5,000 to 160,000 acres. California acreage went from 2003’s 460,000 acres to 2004’s 570,000 acres, a 24 percent increase, while Arkansas’ medium acreage declined by 3 percent to 160,000 acres.
An U.S. and state rice acreage graphics slide show is available at the following web address. http://www.aragriculture.org/agfoodpolicy/ricesitol/slides/Rice_Acreage_US_State_DataRpt_June302004.pdf
Bobby Coats is Extension agricultural policy analyst with the University of Arkansas Cooperative Extension Service.