Rice Farming

Although world rice production is expected to dip in 2002-03 for the third straight year, economists say prices will remain soft because of weak demand and still-ample quantities. That’s assuming normal weather, military and economic conditions throughout the world.

Weather experts are watching the Pacific Ocean to determine the probability of an El Niño weather disturbance that could affect global grain production in 2003. War could bring short-term pricing opportunities, and an El Niño—depending on strength—could provide more price relief. But neither provides the long-term remedy needed to maintain sustained rice prices, says University of Arkansas agricultural policy analyst Bobby Coats.

“When the global economy regains the robustness experienced by rice producers in the mid-1990s, that will be the point at which producers will receive sustainable rice prices that are more nearly consistent with their cost of production,” Coats says.

But it could take five to 10 years for the economies of some of the hardest hit countries to regroup and rid themselves of the mismanagement and corruption that caused the original financial downfall.

“A robust global economy is our real hope for the future because status quo global economic activity will not generate the demand needed to sustain healthy rice prices,” Coats says.

And even if El Niño continues to develop in the Pacific, weather watchers say it’s too early to tell whether it will affect foreign rice production, spurring U.S. rice imports.

“You can’t assume you are going to have a poor rice crop just because El Niño conditions are considered moderate right now,” says deputy chief meteorologist Tom Puterbaugh with the U.S. Department of Agriculture’s World Ag Outlook Board.

The bear continues to roar
The U.S. Department of Agriculture expects 2002-03 world rice milled production to be 381.2 million metric tons (milled basis), the lowest since 1996-97 and the third consecutive year of declining production. (A metric ton is about 2,200 pounds.)

By the end of the 2002-03 marketing year on July 31, 2003, the USDA expects world stocks to be 105.5 million metric tons. Stocks were at a record 145.3 million metric tons in 2000-01.

In the United States, the USDA predicts growers will harvest 211.9 million hundredweight of rough rice, the second largest crop on record. Together with what was carried in from the 2001-02 season, the USDA expects a record domestic rice supply of 263.9 million cwt. By July 31, 2003, the USDA expects U.S. ending stocks to be 41.9 million cwt.

Record domestic supplies and continued low prices in the international market are expected to prevent any significant price strength in the U.S. market this year, says Nathan Childs, a senior economist with the USDA’s Economic Research Service. The forecast assumes normal weather worldwide.

As a result, the USDA has lowered its 2002-03 season-average price by 35 cents on each end to $3.50 to $4 cwt. If the agency is correct, the prices would be the lowest since $3.75 reported in 1986-87 and would mark a continuous decline since 1997-98.

Although global rice supply—measured by stocks-to-use ratio—continues to decline from a high of 37 percent in 2000-01, Childs says it still remains above supply ratios for corn and wheat.

Currently, the world rice supply has a 26 percent stocks-to-use ratio, which compares total supply to what is used. If no more rice were harvested today, the world would still have a 13-week supply in the pipeline. The rice stocks-to-use ratio compares to 23 percent for wheat and only 15 percent for course grains or corn.

In the United States, the rice stocks-to-use ratio is slightly lower at 18.9 percent, but still well above the 11 percent to 12 percent of the mid-1990s, when prices neared $10 cwt and were above loan.

“Fourteen or 15 [percent] means there’s a lot of rice out there,” Childs says. “With 13 percent, you would have a little movement for up pricing.”

What will El Niño bring?
Childs and others who provide market analysis continue to watch the El Niño developing in the tropical Pacific Ocean. El Niño conditions are associated with above-normal sea surface temperatures.

The current El Niño is classified as “moderate” and is expected to be weaker than the 1997-98 “strong” event, according to the National Weather Service’s Climate Prediction Center. El Niño conditions are forecast to continue at least through the winter.

During the next few months, typical El Niño effects may include below-normal rainfall in Indonesia, eastern Australia, and southeast Africa, and wetter-than-average conditions in Uruguay, northeastern Argentina and southern Brazil.

In 1997-98, rice production in Indonesia and the Philippines, as well as in much of South America, was severely reduced. These countries turned to the world market to make up for the shortfall, prompting record U.S. paddy rice exports to South America.

The current El Niño conditions became established during the summer and prevented a monsoon from reaching northwestern India, resulting in a 15 percent decline in 2002-03 Indian rice production from the previous year. But other areas that were affected by El Niño, including the Philippines, experienced only a slight decline in rice production from the previous year.

Because the effects of El Niño are regional, Puterbaugh says it’s too early to say whether the current El Niño will have a significant effect on global rice production in the next few months.

“Depending on the severity of the event, the magnitude of the typical impacts of El Niño can vary for each region,” Puterbaugh says. “You have to monitor the rainfall throughout the season to determine the impact on the crop.

“You could have below normal rainfall, but if the timing is right with respect to the important stages of crop development, you would still come out with a good crop.”

Where do things stand?
Even if El Niño does affect rice production, it will likely be short-lived. So could any “pricing opportunities” derived from conflicts, such as a war between India and Pakistan or in the Middle East. Until the world economies can get back on their feet, Coats says long-term rice prices won’t recover.

He points to the Asian financial crises in 1997 as the start of the global economic slide. In 1999 Russia defaulted on debt and Brazil devalued its currency, which sent serious ripples throughout South America.
Whenever a country devalues its currency against the U.S. dollar, such as Thailand and Brazil did, it puts the United States at a competitive disadvantage globally, Coats says. Instantly, that country’s product is less expensive compared to the same one produced in the United States.

Part of the economic recovery also will hinge on enlisting other economic leaders, such as the European Union and Japan.

“The good news is the U.S. economic is on the mend,” Coats says. “The good news is the Asian economy has relaid a foundation and is looking well. They are just not moving as fast as I’d like to see.”

Contact Vicky Boyd at (209) 571-0414 or vlboyd@att.net.

Hotlinks

National Weather Service Climate Prediction Center
http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/ensoadvisory/

USDA Economics Research Service Rice Outlook Reports
http://usda.mannlib.cornell.edu/reports/erssor/field/rcs-bb/2002/

Only economic recovery will heal the rice market But El Niño, war could offer short-term ‘pricing opportunities’
By Vicky Boyd Editor
Although world rice production is expected to dip in 2002-03 for the third straight year, economists say prices will remain soft because of weak demand and still-ample quantities. That’s assuming normal weather, military and economic conditions throughout the world. Weather experts are watching the Pacific Ocean to determine the probability of an El Niño weather disturbance that could affect global grain production in 2003. War could bring short-term pricing opportunities, and an El Niño—depending on strength—could provide more price relief. But neither provides the long-term remedy needed to maintain sustained rice prices, says University of Arkansas agricultural policy analyst Bobby Coats. “When the global economy regains the robustness experienced by rice producers in the mid-1990s, that will be the point at which producers will receive sustainable rice prices that are more nearly consistent with their cost of production,” Coats says. But it could take five to 10 years for the economies of some of the hardest hit countries to regroup and rid themselves of the mismanagement and corruption that caused the original financial downfall. “A robust global economy is our real hope for the future because status quo global economic activity will not generate the demand needed to sustain healthy rice prices,” Coats says. And even if El Niño continues to develop in the Pacific, weather watchers say it’s too early to tell whether it will affect foreign rice production, spurring U.S. rice imports. “You can’t assume you are going to have a poor rice crop just because El Niño conditions are considered moderate right now,” says deputy chief meteorologist Tom Puterbaugh with the U.S. Department of Agriculture’s World Ag Outlook Board. The bear continues to roar The U.S. Department of Agriculture expects 2002-03 world rice milled production to be 381.2 million metric tons (milled basis), the lowest since 1996-97 and the third consecutive year of declining production. (A metric ton is about 2,200 pounds.) By the end of the 2002-03 marketing year on July 31, 2003, the USDA expects world stocks to be 105.5 million metric tons. Stocks were at a record 145.3 million metric tons in 2000-01. In the United States, the USDA predicts growers will harvest 211.9 million hundredweight of rough rice, the second largest crop on record. Together with what was carried in from the 2001-02 season, the USDA expects a record domestic rice supply of 263.9 million cwt. By July 31, 2003, the USDA expects U.S. ending stocks to be 41.9 million cwt. Record domestic supplies and continued low prices in the international market are expected to prevent any significant price strength in the U.S. market this year, says Nathan Childs, a senior economist with the USDA’s Economic Research Service. The forecast assumes normal weather worldwide. As a result, the USDA has lowered its 2002-03 season-average price by 35 cents on each end to $3.50 to $4 cwt. If the agency is correct, the prices would be the lowest since $3.75 reported in 1986-87 and would mark a continuous decline since 1997-98. Although global rice supply—measured by stocks-to-use ratio—continues to decline from a high of 37 percent in 2000-01, Childs says it still remains above supply ratios for corn and wheat. Currently, the world rice supply has a 26 percent stocks-to-use ratio, which compares total supply to what is used. If no more rice were harvested today, the world would still have a 13-week supply in the pipeline. The rice stocks-to-use ratio compares to 23 percent for wheat and only 15 percent for course grains or corn. In the United States, the rice stocks-to-use ratio is slightly lower at 18.9 percent, but still well above the 11 percent to 12 percent of the mid-1990s, when prices neared $10 cwt and were above loan. “Fourteen or 15 [percent] means there’s a lot of rice out there,” Childs says. “With 13 percent, you would have a little movement for up pricing.” What will El Niño bring? Childs and others who provide market analysis continue to watch the El Niño developing in the tropical Pacific Ocean. El Niño conditions are associated with above-normal sea surface temperatures. The current El Niño is classified as “moderate” and is expected to be weaker than the 1997-98 “strong” event, according to the National Weather Service’s Climate Prediction Center. El Niño conditions are forecast to continue at least through the winter. During the next few months, typical El Niño effects may include below-normal rainfall in Indonesia, eastern Australia, and southeast Africa, and wetter-than-average conditions in Uruguay, northeastern Argentina and southern Brazil. In 1997-98, rice production in Indonesia and the Philippines, as well as in much of South America, was severely reduced. These countries turned to the world market to make up for the shortfall, prompting record U.S. paddy rice exports to South America. The current El Niño conditions became established during the summer and prevented a monsoon from reaching northwestern India, resulting in a 15 percent decline in 2002-03 Indian rice production from the previous year. But other areas that were affected by El Niño, including the Philippines, experienced only a slight decline in rice production from the previous year. Because the effects of El Niño are regional, Puterbaugh says it’s too early to say whether the current El Niño will have a significant effect on global rice production in the next few months. “Depending on the severity of the event, the magnitude of the typical impacts of El Niño can vary for each region,” Puterbaugh says. “You have to monitor the rainfall throughout the season to determine the impact on the crop. “You could have below normal rainfall, but if the timing is right with respect to the important stages of crop development, you would still come out with a good crop.” Where do things stand? Even if El Niño does affect rice production, it will likely be short-lived. So could any “pricing opportunities” derived from conflicts, such as a war between India and Pakistan or in the Middle East. Until the world economies can get back on their feet, Coats says long-term rice prices won’t recover. He points to the Asian financial crises in 1997 as the start of the global economic slide. In 1999 Russia defaulted on debt and Brazil devalued its currency, which sent serious ripples throughout South America. Whenever a country devalues its currency against the U.S. dollar, such as Thailand and Brazil did, it puts the United States at a competitive disadvantage globally, Coats says. Instantly, that country’s product is less expensive compared to the same one produced in the United States. Part of the economic recovery also will hinge on enlisting other economic leaders, such as the European Union and Japan. “The good news is the U.S. economic is on the mend,” Coats says. “The good news is the Asian economy has relaid a foundation and is looking well. They are just not moving as fast as I’d like to see.” Contact Vicky Boyd at (209) 571-0414 or vlboyd@att.net. Hotlinks National Weather Service Climate Prediction Center http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/ensoadvisory/ USDA Economics Research Service Rice Outlook Reports http://usda.mannlib.cornell.edu/reports/erssor/field/rcs-bb/2002/
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