Before offering new projections for rice prices and expectations, John Kruse provided a scorecard for last year’s forecast.

“Actually, we did pretty well,” said the Food and Agriculture Policy Research Institute analyst based at the University of Missouri, Columbia. “We said the season average price would be $7.40. It turned out to be $7.63.”

Speaking to a crowd at the recent Missouri Rice Farm field day in Glennonville, Kruse said much of the reason prices were a bit higher “was because the crop was shorter than was anticipated — about 300 million hundredweight shorter.”

FAPRI — responsible for much agriculture policy analysis for the U.S. Congress — also exercised caution about USDA’s forecast of 121 million hundredweight for export. As it turned out, exports reached only 117 million hundredweight.

“The only thing that surprised us a little was the domestic use of rice was stronger than we thought.”

This year

This year, as most rice producers know, plantings were down some 14 percent. Most of that drop — about 75 percent — was in Arkansas and Louisiana.

“There was also a drop in Texas and Mississippi. Due to a wet, cold planting season, California’s medium- and short-grain rice plantings were also down slightly.

“We’re concerned about yield numbers although there aren’t many hard numbers yet. We do know Louisiana — with about 20 percent of its crop harvested — has had some disease issues. So far, that state is down at least 50 pounds per acre. That isn’t a huge amount — 1 percent, or so.”

The Louisiana ratoon crop also looks suspect. “In some areas, it won’t even (be harvested) because fields are too rutted.”

With the exceptions of Missouri and Arkansas, “crop conditions are worse this year. In fact, conditions are quite a bit worse in Louisiana, California and Texas. So perhaps we’re overestimating the size of the crop currently.”

Adding up everything across all states, rice production will be down 10 percent this year.

“That loss will be in long-grain rice. Even short-grain is projected to be up slightly.”

Demand and exports

FAPRI sees demand remaining strong although Kruse sees a bit of risk. Over the past few years, “our demand growth was tied to our imports of aromatic rice. Primarily that comes from Thailand, India and Pakistan.

“This year, we’re projecting about a 2.6 million hundredweight growth. At the same time, our import growth is only about 500,000 hundredweight. That’s why that area may be one of potential risk.”

What about exports?

“We’ve already said exports will be down 17 percent simply based on shorter production and higher prices. With the new (LibertyLink) GMO issue, there’s a lot more risk on the export side.”

The EU is being very vocal about the GM-rice discovery. If the EU follows the same pattern it used with (GM) corn, “it should take about a year to get back into the market. The market isn’t set up to deal with the testing required. But we certainly hope that isn’t what we see with rice.”

Kruse sees the EU as the second-most sensitive region to GMO issues.

“If I was picking the most sensitive, I’d pick Japan. Saudi Arabia is also in the mix when discussing rice.”

Price

Until Aug. 18 when USDA head Mike Johanns announced GM-rice was in the U.S. supply, “things were looking very good. November futures for rice were over $10 per hundredweight. Unfortunately, since then, that price has dropped significantly…It’s down to $9.30 per hundredweight. The market tends to overreact, but we don’t know if we’ve reached the (nadir) of the situation. That will largely depend on what the EU does.”

The second biggest factor in price has to do with Thailand. Some 18 months ago, Thailand decided to support its rice producers by offering a very high loan rate.

“They set their loan rate above the world price. All of the sudden, they began acquiring a bunch of stocks. At the end of this year, they’ll be close to 3 million metric tons.”

What does that mean?

“Well, at the end of the 2006 U.S. cropping year, we’re projecting about 1 million metric tons of stocks — down 34 percent from last year. So, compare Thailand’s stock levels to last year’s huge U.S. ending stock levels at 1.4 million metric tons.

“By the end of the 2006 crop year, Thailand is estimated to have 4.5 million metric tons in storage. That’s a lot of rice.”

A Bloomberg report claiming rice prices will double in the next two years is looked at dubiously by Kruse.

“I have a hard time agreeing. One reason is they cited low stocks and I’m not sure how they come to that conclusion with such a supply in Thailand.”

Another thing that’s happened this summer is China has made major stock revisions on rice, “yet again” completely revising its numbers.

“They now say they’ve got substantially more rice than we thought they had. When you add these things up, I’m not sure I buy the ‘low world stocks’ argument.”

Consumption trends/loan rates

Kruse also said that in developing countries, per-capita consumption of rice has been declining. The reason is diet diversification.

“They’re eating more meat and other protein sources. When they do that, traditionally you’ll see a decline in rice consumption and a slight decline in wheat. Eventually, consumption of those crops tends to rise again because the population begins eating more processed products.

“Again, from a demand standpoint, we just can’t (agree with) the $20 per hundredweight prices (some project). Right now, our price outlook…is about $8.85. The USDA price is at $9.50 per hundredweight.”

As for the U.S. rice loan rate, “the last debate I heard was talking about lowering the long-grain loan rate and increasing the short- and medium-grain rates based on relative prices. The idea is to come up with a formula to determine that.”

Such an approach would only be a short-term solution.

“Long-term, there may be more medium- and short-grain rice planted in Arkansas. The rice producers in California won’t be very excited about that. I’m not sure the producers are the ones raising this issue as much as USDA administrators.”

Currently, FAPRI is “gearing up for the farm bill debate which will largely occur next year during spring and summer. We’re not quite sure of the schedule yet, but that’s foremost on our agenda.”

e-mail: dbennett@farmpress.com