Since the rapid increase in rice prices in early 2008, prices have softened with the global economic slowdown and increased production. This is more the case with long-grain rice than with medium-grain.

Free on board (FOB) long-grain milled rice prices in the Gulf have retreated to levels of late 2007 ($22.50 per hundredweight), while medium-grain prices have remained relatively strong ($825 per metric ton FOB Oakland — well above the average price in 2007 of $545 per metric ton).

Rice prices are not always a rational reflection of the fundamentals of the underlying market. A number of factors led to the near-panic buying in 2008. While there is no need to rehash this old news, it is worth examining that event and considering some changes in the world market situation that may have had their roots with this market anomaly.

Despite a calming of the global rice market, some rice exporting countries still maintain export restrictions or taxes on exports to assure supplies of reasonably-priced rice for domestic consumption.

In Egypt, a medium-grain rice exporter, these restrictions, coupled with the continuing drought in Australia, have lead to fewer exporters of medium-grain rice, thus bolstering the medium-grain rice market.

For long-grain markets, there have been a number of changes in import barriers and modifications in traditional sources of supply, particularly on the African continent. West African countries have reduced or temporarily suspended import duties to provide this basic food staple at more affordable prices to their citizens.

Some West African countries are now turning to the U.S. for rice for the first time in a number of years, which is likely to be temporary.

In contrast, Nigeria appears to be a more sustainable market opening for U.S. parboiled rice. USA Rice Federation is conducting a market analysis in Nigeria as a prelude to a possible promotional campaign for U.S. rice.

South and Central America

Mexico and Central America have traditionally been growth markets for U.S.-grown rice, however, political and economic pressures are having an impact on its market penetration in this region.

In Mexico, imports of U.S. rice have dropped by 21 percent from the record level in marketing year 2007-08. While Mexico has long been a strong export customer, recently the country has begun importing a relatively small quantity of rice from Uruguay, a trend that bears watching, particularly as the quality and price of the rice are near that of U.S.-grown rice.

In Central America, U.S. rice imports dropped by 25 percent — a consequence of the global recession. What some may consider a potential bright spot is Venezuela, which increased imports from the United States from zero two years ago to 227,000 metric tons last marketing year. This trend may not continue, as Venezuela’s imports are a reflection of anomalous factors, including lack of supply from traditional suppliers, government and political control of the agency responsible for all imports, price controls enacted by the country, and the nationalization of some rice mills.

While Cuba represents a significant potential market for U.S. rice, its total rice imports have declined from more than 700,000 metric tons in 2004-05 to 425,000 metric tons in 2008-09. The U.S. portion of imports has fallen from a high of 177,000 metric tons in 2004 to a low of 12,000 metric tons last year.

The drop in U.S. rice sales is the result of the U.S. policy requiring pre-payment for agricultural commodities purchased by Cuba. The poor economic situation in Cuba is the reason for the decline in total rice imports.

Political changes on both sides of the 90-mile Gulf divide are needed for the U.S. to become the supplier of choice to this market, which could replace Mexico as the number one market for United States rice. U.S. exports made up less than 3 percent of Cuba’s dwindling imports.

The Middle East

In the Middle East, in some markets price again seems to trump all other factors. While the United States continues to make some rice sales to Iraq, that country has shifted to a primarily price-driven market with most rice supplies in the country distributed through a ration card system.

Thailand and Vietnam have captured a greater share of this business in recent years. For example, in the recently announced results of an Iraq tender, the country purchased 50,000 metric tons of rice from Vietnam, 30,000 metric tons from Thailand and surprisingly, and 60,000 metric tons from South America (Argentina and/or Uruguay), but none from the United States.

The offered price difference between U.S. and Thailand was $115 per ton, and between U.S. and Vietnam, $220 per ton.

In a move perhaps driven by its desire for food security, Saudi Arabia is seeking land abroad for rice production. There have been reports circulating since early spring that Saudi Arabia-based investors including the Islamic Development Bank are interested in investing more than $1 billion to develop rice production in Africa and/or Indonesia. If executed as originally envisioned, the investment would cover 1.7 million acres of new rice production.

A pilot project of 12,000 acres in Mali is reportedly the first phase of this project. Whether this planned project reaches full fruition is a matter of intense speculation.

With the newer, better quality medium-grain varieties now grown in the Mid-South, Jupiter and Neptune specifically, there is interest from the Middle East region in purchasing these varieties. However, it is unclear how the market will accept them — whether they will be standing alone identified as U.S. origin and marketed as such, or used only for blending with other origins of medium-grain rice whether domestic or imported.

Currently, almost all Southern medium-grain rice in the Middle East is used for blending. How this rice is used will affect whether USA Rice is able to promote these varieties and may also affect their sustainability in the market.

Asian influences

In Thailand, the government’s intervention program sustains the price of long-grain rice. It is estimated that Thailand holds between 6 million and 7 million tons in intervention stocks. As a result, the Thai FOB price has at times been at parity with the U.S. price.

The sheer volume of the Thai government’s stocks is bearish to prices if or when these stocks enter the market.

Vietnam has become a market leader in rice exports, second only to Thailand. The country has increased its rice production and its government’s support for its infrastructure and rice quality improvements will strengthen its ability to compete in the export market in the future.

While Vietnam’s rice is currently perceived as the poorest quality rice among major exporters, it is priced to enter the export market. This is not likely to change in the near term.

Recently, Taiwan for the first time ever purchased U.S. Southern medium-grain rice. The market acceptance of this rice is not yet proven since it is unknown in the market.

Rising tide of imports

In the United States, imports of rice hit a new high of 700,000 metric tons in 2008-09, dominated by fragrant rice (Jasmine) from Thailand.

Not satisfied with this growing trend, the U.S. rice industry responded with a new fragrant rice of its own dubbed Jazzman. This variety holds the promise of providing farmers a new and growing market for their American-grown aromatic variety here at home.

Additionally, other advances in fragrant varieties are expected to enter into U.S. commercial production. This may make inroads into the market currently dominated by imports.

With all of the factors that contribute to the state of the U.S. rice industry, there is really only one thing that is constant — change. It will be interesting to see how the next year shapes the global rice situation.