Tight domestic supplies, increasing U.S. consumption and strong exports drove rice prices higher in 2003, much to the delight of U.S. rice producers. But a downturn in prices is sure to come with higher acreage and a decline in exports, both of which are expected next year, said Nathan Childs, senior rice market analyst with USDA's Economic Research Service.
“High prices seem to last 12 to 18 months for the U.S. rice industry,” Childs said at the USA Rice Outlook Conference in Biloxi. “If prices are high one year, the next year, plantings increase substantially and even though beginning stocks are usually relatively light, within four to five months, there's a lot of rice out there, and it begins to crash.”
As an example, Childs cited the recent El Niño year (1998) when Brazil bought 550,000 tons of U.S. rice, and Peru, Ecuador and Colombia took around 300,000 tons. U.S. rice acreage spiked to 3.5 million acres the following year, the second highest on record. Prices plummeted rather quickly after that.
Childs noted that the gap between U.S. and Thai prices and good rice crops in many importing countries will also pressure U.S. rice prices. Here's more on the U.S. and world rice situation:
In 1980, U.S. rice imports were less than 1 percent of total U.S. consumption. Now, imports are around 13 percent of total U.S. consumption. Childs noted that the makeup is mostly aromatic varieties not currently grown in the United States.
“We projecting importing about 16 million hundredweight in 2003-04, up from a year earlier record of around 15 million hundredweight. What's important is that imports are growing at a faster pace than domestic consumption.”
Through 2002-03, Thailand comprised about 60-65 percent of U.S. imports. “That primarily is Jasmine rice, a steadily growing market for about a quarter of a century. Other steadily growing markets are Basmati rice from India and Pakistan.”
On the other hand, over the last two years, China and Australia have shipped substantial amounts of medium grain rice into Puerto Rico. “That counts as domestic consumption,” Childs said. “It's going to be interesting to see if that's going to remain a top market for foreign rice.”
U.S. rice consumption was estimated at a record 124 million hundredweight for 2003-04. “We also see an increase in per capita consumption of a little less than a half a pound per person,” Childs said.
While the domestic use share of the U.S. rice market has increased over the last quarter of a century, it's been overshadowed recently by the strength of exports “coming from rough rice exports to Latin America and milled rice to northeast Asia.”
Record U.S. rice exports were reported in 2002-03, at nearly 125 million hundredweight. Rough rice, at a record 43 million hundredweight, accounted for most of the increase. “That was an incredible increase in rough rice exports.
“For 2003-04, we're projecting almost the same in rough rice exports, 42 million hundredweight. But we project a huge drop in milled rice exports, primarily in the price sensitive markets of sub-Saharan Africa and the Middle East.”
While U.S. export shipments as of Nov. 27 were 2 percent ahead of the year earlier, “all of that strength is in the western hemisphere, Brazil, Haiti and Venezuela,” Childs said. “Other major markets like Turkey, Saudi Arabia are way behind a year earlier.”
U.S. ending stocks for rice are at the lowest level since 1980-81, which has resulted in a 10 percent stocks-to-use ratio. “That's is very tight, the lowest in a quarter of a century. The stocks are about evenly split between long grain and medium grain, but long grain has a 6.5 percent stocks-to-use ratio, the smallest since the early 1970s. The stocks-to-use ratio for medium grain is not so tight, at 17 percent.
“The tight stocks for long grain means stronger prices all year.
“The season average farm price this year provided the first increase over the previous year since 1996-97, the first year U.S. farmers planted under the 1996 farm bill. We had strong prices for several years due to El Niño, but prices declined after that due to low prices in global markets and large supplies in the United States.”
At some point, high prices will deter some buyers from taking U.S. rice, noted Childs. “U.S. rice prices are coming in $140 per ton higher than Thai rice. That's a big difference. It's rare that the United States can be competitive at that kind of price difference.
“At what point will high prices choke off or limit exports? Right now, in those price sensitive markets like Saudi Arabia and sub-Saharan Africa, shipments are substantially behind a year earlier. Latin America is a rough rice market, so the price relationship is probably not as critical.”
Global rice production is expected to increase 3 percent, mostly driven by a return to normal production in India. “We've had three consecutive years of declining global stocks, with China accounting for most of the decline,” Childs said.
Meanwhile, global stocks of around 83 million tons are the lowest in about 20 years, and the stocks-to-use ratio is plummeting to around 20 percent. “But we don't believe those declining ending stocks are going to affect world price very much.”
One reason, “We have adequate exportable supplies worldwide and bumper crops for several countries. While China and the United States are going to experience smaller crops in 2003-04, China's reduced crop is not likely to affect its exports. In the United States, while exports are down 25 percent, we still have the third highest export total on record.”
As a result of lower import demand, trading prices are projected to remain weak, according to Childs. World trade is expected to decline for the second straight year.
Still, there is some bright news for the long term, according to Childs. Demand for rice continues to grow, yet yields are flat and area for rice isn't widely available. “There is a question of where the rice will come from. But prices do not seem to reflect those concerns at this time.”