The fundamental supply and
demand situation was provided a
small boost with the release of the
USDA’s November supply and
demand report. For much of 2012, the rice
market has been fairly stagnant as lackluster
demand has limited momentum. However,
signs of improving demand and prospects
for additional future demand are starting to
firm up the outlook for total rice demand
and leading to improvements in the overall
supply and demand balance for rice.
While the lower projections for 2012
rice yields in the November report will
help ease some of the supply burdens facing
the market, the most significant
change in the report was increasing total
demand led by export demand. The USDA
increased its export expectations by three
percent in the November report from the
previous month. Lower production in
India during the 2012/13 marketing year is
expected to severely curtail their export
sales and should hopefully improve the
longer run prospects for U.S. rice exports.
Stronger Export Sales And Potential
In addition, to improve prospects for
future export demand, there have also
been signs of stronger export sales over
the last several weeks. While cumulative
rice exports through Nov. 1, 2012, are
down about eight percent from last year,
this compares to being down 17 percent at
the start of October and down 25 percent
at the start of September. Also, outstanding
rice export sales are currently up 19
percent from last year and total rice export
commitments are up three percent.
Other developments in October also point to the potential for additional export
demand moving forward. First, after several
months of negotiations between
USDA’s Animal and Plant Health
Inspection Service (APHIS) and the country
of Colombia on terms of entry for
rough rice exports, the first shipments of
rice arrived in Colombia on Oct. 17, 2012.
This is projected to be the first of several
shipments that could materialize by the
end of 2012, with potential for additional
trade in 2013.
Another development that warrants
attention is the potential of trade with
China. In October, APHIS received a draft
protocol from the Chinese government on
requirements for importing U.S. milled
rice. This is also being taken as a sign of
potential business that could materialize
with the world’s largest consumer of rice.
Louisiana Cash Prices Up Slightly
With the prospects for improving
demand and for expanding future demand,
there is a much more positive tone to the
market. While cash prices have started to
slowly react to these improving conditions,
they are still far from levels that will
likely be competitive with other commodities
for acres in 2013. Early projections for
the 2013 production year see additional
rice acres shifted into competing commodities.
In areas of the rice-growing
region where corn and soybeans can be
competitively grown, the high prices currently
being seen for those commodities
are expected to pull acres out of rice.
Lower acreage and lower production in
2013 in combination with improved
prospects for demand could finally provide
the needed spark for this market to see real price improvement.
Cash prices in Louisiana are currently
being noted at the $14.80 per hundredweight
($24.00 per barrel) range. This is
up slightly from the level that prices have
seem to be stuck in for the last several
months in the low $14.00 per hundredweight
($23.00 per barrel) range.
Additional export activity during the
remainder of the year should help support
prices at these levels and could push prices
marginally higher as local supply levels
tighten, particularly of high-quality rice.
If demand prospects continue to show
their signs of improvement, prices could
continue to move higher after the first of
the year once the market begins to focus
more squarely on potential 2013 production.
With the new crop 2013 futures contract
(September 2013) currently trading at
roughly $0.55 per hundredweight higher
than nearby futures, it appears the market
is anticipating lower production and lower
overall domestic rice stocks in 2013.
While global rice production and competition
will continue to be an important
factor in the overall direction of prices, the
improving supply and demand situation
expected for the domestic rice industry
should point to better prices moving forward.
Certainly prices in the $15.00 -
$16.00 per hundredweight ($24 - $26 per
barrel) would not be out of the question
given the current outlook and the potential
of higher levels if further supply or
demand side stocks materialize.
Kurt Guidry is a Professor in the
Department of Agricultural Economics &
Agribusiness, LSU AgCenter. Contact
Guidry at KMGuidry@agcenter.lsu.edu.