The first of the year into February looked very dismal for equities and many commodity prices. Part of the problem was bearish supply and demand fundamentals for many commodities in an anemic global economy.
Another other part of the problem was an array of unfolding macro factors being driven to a large extent by unfolding fiscal and monetary policy.
Coming into the year the Federal Reserve had signaled hawkish intentions of potential aggressive rate hikes this year into next year.
As this year got under way, market participants had real concern about building global weakness and potential fiscal and monetary policy intervention impacts.
First, market participants were increasingly concerned about the strengthening dollar’s potential negative impact on U.S. business and farm exports and their profitability.
Second, they were concerned about the potential continuation of falling equity and commodity prices due to dollar dominance.
Also, large chunks of global debt are financed with dollars by other countries. Thus a rising dollar would likely inject further weakness into global economies especially debt-ridden economies.
In January the U.S. Central Bank leadership addressed these concerns and signaled a more dovish position indicating concern that neither the U.S. economy or many global economies were strong enough for aggressive multiple Fed rate hikes over the next year.
This was followed by the Bank of Japan and the European Central Bank, to name a couple, increasingly embracing negative interest rates, which coupled with an increasingly dovish U.S. Central Bank started generating demand for U.S. and many global equities and attracting global monies into commodity markets in general — a good example being the soybean market.
The current global market dynamics have now been in place at varying levels since mid-February and the intervention fiscal and monetary policy activities have reflated the global economy and generated demand for many commodities.
These intervention activities are now in transition, which will likely lead to price uncertainty and even price weakness without some fundamental reason for rice, cotton, and grain prices to advance.
USDA’s May 10 release of its first 2016-17 world agricultural supply and demand estimates for U.S. long grain rice shows the following:
2016-17 U.S. Long Grain Rice
• 2016 harvested area is up 32 percent from last year at 2.4 million acres, the largest in six years. The previous 10-year average was 2,120,300 acres and the five-year average was 1,904,800 acres.
• 2016-17 beginning stocks of 22.5 million hundredweight are 4 million hundredweight below 2015-16 and the third lowest in the current 7 marketing periods.
• Production of 181 million hundredweight is the second largest on record following the 2010 record of 183.3 million hundredweight. (2011, 116.4 million hundredweight; 2012, 144.3 million hundredweight; 2013, 131.9 million hundredweight; 2014, 162.7 million hundredweight; 2015, 133 million hundredweight)
• Total supply of 224 million hundredweight if achieved will be a record (2010, 222 million hundredweight; 2011, 169 million hundredweight; 2012, 187 million hundredweight; 2013, 173 million hundredweight; 2014, 200 million hundredweight; 2015, 180 million hundredweight)
• Domestic and residual use is projected to be the second highest on record at 105 million hundredweight following 2010-11’s 108.6 million hundredweight. and 19-percent higher than 2015-16 marketing period.
• Total exports are projected at 81 million hundredweight the highest since 2005-06’s 92 million hundredweight.
• Total use is projected to be the second highest on record at 186 million hundredweight, which is slightly above 2010-11’s 186.5 million hundredweight.
• Of major concern: 2016-17 end stocks are presently projected to be the highest since 1985-86 or the third highest since 1982. Previous highs were 1984, 38 million hundredweight and 1985, 49 million hundredweight. The previous 10-year ending stocks average was 23.8 million hundredweight and the previous five-year average was 22.3 million hundredweight.
• Long-grain rice 2016-17 average farm price is estimated in a range of $9.50 to $10.50 per hundredweight, which compares to 2014-15’s $11.90 and 2015-16’s range of $10.80 to $11.20 per hundredweight.
• See Slide Show: U.S. All Rice, Long Grain and Medium Grain Supply and Demand Estimates.
2016-17 World Rice: Key Points
• World rice harvested acreage is up 1.8-percent at 160.6 million hectares or 397 million acres. The record world rice acreage was 161.8 million hectares or 400 million acres.
• Rice production is estimated at a record 480.7 million tons. The previous 10 year average was 456 million tons and the previous 5 year average was 474 million tons.
• World rice trade at 40.7 million tons continues to decline from 2013-14’s 44.1 million tons; 2014-15, 42.8; and 2015-16, 41.4.
• Rice total use is forecast at a record 480.5 million tons slightly below production of 480.7 million tons.
• World rice ending stocks or slightly above the previous year’s ending stocks of 106 4 million tons.
• See Slide Show: World Rice Supply and Demand Estimates.
The Foreign Agricultural Service/USDA, Office of Global Analysis in its May 2016 Grain: World Markets and Trade publication’s Rice: World Markets and Trade Section made some key bullet points on global rice importers and exporters.
Global economic uncertainty has some importers focused on economic, food, energy, and homeland security. FAS on Selected Importers for 2017:
• Bangladesh is forecast up 150,000 tons to 500,000 from the prior year, as steady consumption and declining stocks encourage additional imports.
• Brazil is forecast down 100,000 tons to 600,000 because of a larger crop and ample supplies for domestic consumption.
• China is stable at 5.0 million tons as favorable prices in neighboring countries continue to encourage cross-border trade.
• Cote d’Ivoire is projected down 100,000 tons to 900,000 on prospects for a larger crop.
• EU is forecast to remain at 1.6 million tons amid steady consumption.
• Indonesia is forecast to decline 750,000 tons to 1.3 million as higher production prospects reduce the need for imports. Consumption remains relatively flat, while stocks decline slightly.
• Iran is forecast to remain at 1.5 million tons, limited by current financial challenges and despite a growing population.
• Iraq is expected to remain flat at 1.2 million tons supported by government distribution and private-sector purchases.
• Malaysia is forecast up 30,000 tons to 1.1 million.
• Nigeria is projected down 300,000 tons to 2.0 million on continued government policies to limit foreign exchange use for rice purchases and to restrict transit via land borders.
• The Philippines is cut 300,000 tons to 1.5 million on adequate carry-in stocks and a projected recovery in production from the 2015-16 crop, which suffered negative effects of El Niño.
• Saudi Arabia is expected up 50,000 tons to 1.5 million tons on continued demand for basmati rice.
• Senegal is projected flat at 990,000 tons on steady demand for broken rice from India and Thailand.
• South Africa is forecast down 75,000 tons to 925,000 as an expected recovery in corn production reduces demand for rice.
• Turkey is projected up 75,000 tons to 275,000 as declining stocks necessitate imports to satisfy consumption.
• The United States is forecast up 25,000 tons to 775,000 on higher demand for fragrant rice.
• Venezuela is forecast to remain at 400,000 tons as financial challenges constrain imports from regional suppliers.
Global Export Market Showing Weakness: FAS on Selected Exporters for 2017:
• Argentina is forecast up 120,000 tons to 600,000 from the prior year due to a larger crop and the new administration’s removal of export tariffs.
• Brazil is projected up 50,000 tons to 800,000 due to crop recovery and sufficient exportable supplies.
• Burma is forecast up 50,000 tons to 1.9 million on higher demand from regional markets.
• Cambodia is projected up 150,000 tons to 1.1 million, on a larger crop and continued demand from neighboring countries and the EU.
• India is forecast down 500,000 tons to 8.5 million, with smaller exportable supplies and strong domestic demand.
• Pakistan is projected down 150,000 tons to 4.3 million, as it faces lower carry-in stocks and continued competition with India for basmati markets.
• Thailand is forecast down 800,000 tons to 9.0 million, as stocks continue to decline and exportable supplies are reduced.
• The United States is forecast up 275,000 tons to 3.6 million on larger supplies and improved price competitiveness.
• Vietnam is unchanged at 7.0 million tons on steady demand from China and Southeast Asia.
Robert Coats is a professor in the Department of Agricultural Economics and Agribusiness, Division of Agriculture, University of Arkansas System. E-mail: [email protected].