USDA’s January 2004 crop production report just released confirms record U.S. all rice and long grain rice production and near record U.S. medium grain production.
Short term I would suggest that this adds to the bear’s case of market weakness for the following reasons:
Huge U.S. Production: U.S. all rice production is estimated by USDA at a record high 231 million cwt, U.S. long grain production is a record 169 million cwt, up 13% over last year, while U.S. medium grain production comes in as the third largest on record at 61.9 million cwt and a 22-percent increase over 2003’s production. U.S. all rice ending stocks for 2004/05 are projected at 40.1 million cwt, down 4 percent from last month but up 69 percent from 2003/04. Ending stocks are the largest since 1986/87. U.S. long grain ending stocks for 2004/05 are estimated by USDA at 23.5 million cwt, the second largest since 1986/87 and significantly above the previous period’s 10.3 million cwt.
U.S. Export Pace Slow: With the 2004/05 marketing year almost half over, U.S. all rice exports are lagging with fewer rough rice sales and increased dependence on milled rice sales. Without Brazilian business rough rice exports are expected to be problematic coming in at 32 million cwt. Granted rough rice exports are the fourth largest on record but they are down for the second consecutive year. If other global export business doesn’t materialize fairly quickly this signals price weakness as the market struggles to digest a larger than normal crop.
Global Economy Still a Question Mark: Global economic activity is simply not strong enough to inspire strong business investment. Even though major companies are investing, they are cautious, concerned about the downside risk. For example energy companies are conservatively investing in expansion due to their fear of being caught with excess supply. With energy commodities in short supply and commanding high prices, other commodities like rice, cotton, soybeans, wheat have been experiencing higher levels of price volatility due to the risk and uncertainty found in the commodities market.
Western Hemispheric Rice Production Returns to Normal Reducing Demand For U.S. Rough Rice: Western Hemispheric milled production in 2004/05 is estimated by USDA at 22 million metric tons (U.S. production 7.3 million tons) giving the region a production level that exceeds consumption. The South American weather events that would normally bring Brazil into the U.S. market as a purchaser of rough long grain rice cannot be counted on in this marketing period. Brazilian production, though down over last year’s production, is good giving them 2004/05 ending stocks of 1.4 million tons, which is larger than U.S. projected ending stocks of 1.3 million tons.
Global Production Up For 2nd Consecutive Year: With global production up 20 million tons over 2002/03 (U.S. production: 7.3 million tons) global rice producing countries are moving to address dangerously low global stocks estimated at 72 million metric tons the lowest since 1983/84 (U.S. ending stocks: 1.3 million tons).
Global Weather Remains Fairly Normal: Statistically the world is due a significant catastrophic weather event. For the past several years weather events have remained localize with no major wide spread damage.
Food Security and Protectionism Alive and Well: From a food production perspective it would be a huge mistake to underestimate the will of the Asian people to meet their basic foods needs. Without a strong robust global economy the Tsunami event if nothing else will reinforce the Asian’s desire to focus on food security and self sufficiency in rice production.
Given the above I present the following rice price outlook.
2004 Arkansas Long Grain Rice Price Outlook – For the marketing period that begins Aug. 1, 2004 and ends July 31, 2005 I have the following total cash value:
Cash Price $3.30 per bushel $7.33 per cwt LDP $0.20 per bushel $0.45 per cwt Total Cash $3.50 per bushel $7.78 per cwt
2004 Arkansas Medium Grain Rice Price Outlook – For the marketing period that begins Aug. 1, 2004 and ends July 31, 2005 I have the following total cash value:
Cash Price $3.00 per bushel $6.67 per cwt LDP $0.18 per bushel $0.40 per cwt Total Cash $3.18 per bushel $7.07 per cwt 2005 Arkansas Long Grain Rice Price Outlook – For the marketing period that begins Aug. 1, 2005 and ends July 31, 2006 I have the following total cash value:
Cash Price $3.35 per bushel $7.44 per cwt LDP $0.00 per bushel $0.00 per cwt Total Cash $3.35 per bushel $7.44 per cwt
2005 Arkansas Medium Grain Rice Price Outlook – For the marketing period that begins Aug. 1, 2005 and ends July 31, 2006 I have the following total cash value:
Cash Price $3.70 per bushel $8.22 per cwt LDP $0.00 per bushel $0.00 per cwt Total Cash $3.70 per bushel $8.22 per cwt
Now those who are bullish the rice market would counter that the above rice price outlook probably understates the future, especially the 2005/06 marketing period for some of the following reasons:
First, global consumption has exceeded global production for the fourth consecutive year with the consequence of stocks falling from 139 million metric tons in 2001/02 to 72 million tons today, the lowest since 1983/84.
Second, global economic activity may not be robust, but it has a strong pulse, orderly expansion is occurring which implies a solid demand for commodities including rice. Third, as the gap between U.S. rice prices and Thai rice prices narrows, the Iraqi rice business becomes more likely. This will improve the U.S. competitive position in the world market.
Fourth, as USDA points out from 2003 to 2004, the international rice market saw a major market share shift as China and India retreated from the market allowing Thailand to supply approximately 40 percent of the global market, and
Fifth, USDA makes a reasonable contention about the immediate future when they say that from 2004 to 2005, the international market is expected to again see substantial shifts in market share as relatively tight exportable supplies in Thailand and China force buyers to look for alternative suppliers, primarily India, Pakistan, and the United States.
Bobby Coats is Extension Agricultural Policy Analyst with the University of Arkansas Cooperative Extension Service.