LITTLE ROCK, Ark. -- The end of the 2004 rice marketing year is July 31, and rice price weakness gives every indication of being problematic until rice supplies can be reduced either through new export business and/or rice government forfeitures.
Since December 2001, global economic activity has gone from being anemic to robust by January 2004. That was a key factor in the strong demand U.S. row crop producers experienced in the second half of 2003 and the first half of 2004.
Today, when compared to historical standards, global economic activity remains extremely strong but non-directional. This lack of direction raises questions about future global strength and immediate demand for food commodities. A couple of the key reasons for the global economies lack of direction follow:
• First, global economic activity continues transitioning from economic expansion that is fueled by financial stimulus to one that is self-sustaining. Uncertainty exists about when or if this transition will be made and the uncertainty creates price weakness for rice and other agricultural commodities.
• Second, the global expansion had become so explosively strong that demand was outrunning supply of many industrial commodities, raising inflation fears and creating uncertainty about the global economy’s ability to maintain an orderly economic expansion. China, developed countries, and others in 2004 took measures to slow economic expansion, to cool down inflation, to let industrial commodity supplies catch up with strong economic activity. That is a primary reason a number of agricultural commodities experience price weakness today.
So with the global rice market filled with uncertainty about future governmental actions, weather, global supplies, strength of global economic activity, and a vast array of global, political and trade events, I will discuss a scenario for price weakness and one for price strength. Make no mistake, U.S. rice price weakness exists until supplies can be reduced.
Excess rice supply is weighing heavy on the U.S. rice market. What’s behind the current rice price weakness for U.S. long grain rice?
• USDA estimates record 2004 U.S. all rice production and supply at 231 million hundredweight and 268 million hundredweight respectively and ending stocks at 40.1 million hundredweight, the largest since 1986. U.S. all rice production is 21 percent larger than 2000 production.
• USDA estimates record 2004 U.S. long grain rice production at 169 million hundredweight and the second largest supply at 190 million hundredweight. Ending stocks are estimated at 22.5 million hundredweight, the second largest since 1986.
• Asian export competitors and Latin American rice producers are currently in varying stages of harvest. With 2004-05 world milled rice production at 402.1 million metric tons, the second largest on record, short-term potential for new export business (especially in Latin America where ending stocks are the second largest in the past five marketing periods) is limited.
• Global rice trade is down for the third consecutive year, which tells me:
First, countries are cautious about becoming dependent on other countries to supply a commodity as important as rice when global economic expansion is uncertain;
Second, even perceived economic uncertainty raises food security issues and that weakens the global demand for rice. When economic times are less than certain, many countries become protectionist and focus on self sufficiency in rice production.
• Asian soybean rust’s potentially damaging impact on U.S. soybean production has some U.S. rice producers planning to plant more rice and less soybeans.
• With Latin American production, supply and stocks adequate and with Brazil out of the rough rice market, 2004-05 U.S. rice exports depend on fewer rough rice sales and increased dependence on milled rice sales.
• Dangerously low global rice stocks are causing a rapid introduction of technology with China and other countries moving to introduce genetically engineered rice as well as the continued introduction of new varieties producing record yields and milling.
Now what could make me start turning a little bullish on this U.S. long grain rice market?
• If the demand for industrial commodities starts to strengthen, global economic activity has a good chance of becoming self-sustaining, which suggests strengthening demand for food commodities.
• Global trading prices are rising due to tight global stocks and a tight supply situation in major exporting countries. As U.S. and Thai prices converge and start moving up in tandem, I expect strengthening exports. For example, U.S. rice farmers should be more competitive vying for Iraq’s 1.2 million metric ton annual business.
• Improved exports in India and Pakistan would be a good sign of shifting global trade. East Asia, South Asia, and Southeast Asia ending stocks are the smallest in the past five production seasons. Tight exportable supplies in Thailand, Vietnam and China may force buyers to look for alternative suppliers, as USDA points out, primarily India, Pakistan, and the United States.
• If China enters the rice market in March or April and purchases long grain rice from Thailand and Vietnam, that would be a good sign that China’s stocks are dangerously low and an indication that global rice trade would be strengthening.
• If new export business were to emerge in Latin America, especially rough rice business, one would expect rice price improvement.
• The world is due a significant weather disturbance. With critically low global stocks, the global demand for U.S. rice would cause a rapid price movement.
• Looking forward, global rice consumption continues to exceed production and stocks continue to decline. This can only strengthen world rice prices. For the past six years, world rice yield has remained fairly flat and world rice acreage is only the sixth largest on record. World rice production of 599 million metric tons, though up for the second consecutive year, is still below the 1999 record. Ending stocks still trend downward and are at the lowest levels since 1983. Additionally, ending stocks as a percent of consumption are the lowest they have been since 1981.
Bottom line: The end of the 2004 rice marketing year is fast approaching, and rice price weakness gives every indication of being problematic until rice supplies can be reduced either through new export business and/or rice government forfeitures.
A slide show that accompanies this article is available on the Internet at
Bobby Coats is an agricultural policy analyst with the University of Arkansas.