Rice: Is The  Outlook As Bleak As It Seems 

RICHARD E. HICKS

OCEAN SPRINGS, MISSISSIPPI

Hello, as I take pen in hand I am staring out the window of my wife’s camper, my son-in-law and I are in north Georgia fly fishing. Notice I did not say catching. Fishing is a great pastime if you need to clear your head. Nothing does that quicker like standing in near ice cold water waiting for a fish you know is not coming. I have been looking at the fundamental situation and it does appear we face some stiff challenges.

The good news is prices have seemed to stabilize and somewhat improved the various indexes have improved but still lag behind multiyear levels.  The improvement has not stabilized enough to overcome the levels we have seen the past few years. These significant drops have left us in a deep hole. This brings us to the old saying ” if you find yourself in a hole, stop digging” Domestically, we seem to be somewhat slowing down the digging. Trade talk has us reducing acreage by as much as one third, but I am somewhat skeptical farmers farm and when planting season is over I doubt we see little more than a ten to twelve percent reduction. Similar to last season we saw what I would consider to be healthy decreases in acreage domestically. Overall we saw about a twelve percent decrease in acreage. Only MS ruined the curve with an increase. To see this two seasons in a row may be too much to ask. The economics of the times may be able to encourage this event but only time will tell. The problem still centers around the old crop carryout. We need to eat or export more rice to see that number decrease.

While this will be somewhat of an improvement the ground has to be planted in something and that helps to improve the overall supply of grains and legumes. An increase in the pile rarely benefits the supply demand as a whole. As what I consider to be a US specialty crop. Rice prices can still be influenced by the overall glut of feed grains both internally and abroad. I am a bit encouraged by the slow realization that more bushels across the scales is not necessarily the answer. We are in a selling situation. We need to sell more to lose the pile overhanging the market.

Let us now look abroad. South American production is coming in and it looks like no major impediments to their production. Brazil appears to have a more than ample supply of old crop. I have never seen any good news coming from Brazil and the rice carryout is no exception. They are our direct ag competitor so if they have a problem or a surplus, we feel the effects. The limitations there are few your need level ground and irrigation. I believe they can provide both, but will they enter a market already dominated by the major players?

In Pakistan, last seasons’ monsoon has a somewhat small impact on production. I do not believe it was large enough to warrant further comment and I doubt they will have two years in a row with modest decreases. Even so Pakistan may be a country to keep an eye on. They look to be making a move to become more of a major player in the world of rice.

China and India the two largest producers seem to have a near limitless ability to produce more rice. Many of the other Asian countries seem to looking forward to better production. The tropical countries have the multi-seasons edge other producers lack. An interesting note, Japan faces a shortage and higher prices, while South Korea faces a glut. These are fun facts but point more to internal trade policies as the major contributing factors.

The more I look into the rice game and I will call it exactly that, the more confused I become. The Asian countries look to me to play this game extremely loose and fast. Side trade deals tariffs and what I would call outright manipulation make the game extremely hard to figure out. I do not see how the recent Indian UK trade deal is legitimate under the WTO, but what do I know, this pact signed years back I thought was suppose to level the playing field. I think it has done exactly the opposite.

Rice is the third largest crop with corn being number two. So, the importance of the worlds rice production carryout and trade are paramount. From what I have been able to glean through reading many producing countries are making an all-out move to grab a bigger market share. Even some African counties which have been steady traditional customers are trying to increase their production and thereby risks the of supply disruptions. Niger inked a loan recently to increase their production over the next ten years. The deal worth 1.8 trillion West Africa Francs looks to increase rice production in the next ten years. (I will leave it to you to covert to dollars).

As I dive deeper into the world of rice, I see what a small impact we can and do have on rice production. Our production is not large enough to have influence on the rice trade. I am not trying to undermine rice production here, but it does appear we are price takers not price makers. I am at a loss as to what we can do to change this outlook. The major producers control the market and we do not have the ability to make an impact on what is a huge market. A small reduction in acreage here in the US will, in my opinion, be adequately met by is an ever-growing effort to increase production worldwide. Once again, a look at the fundamentals in agriculture is a daunting task plagued by high costs and overwhelming outside fundamentals one can only batten down the hatches and see what happens. Good news I believe our friends at the USDA have raised the average price by .20/cwt. Happy days are here again.   ∆

RICHARD HICKS IS THE MANAGING DIRECTOR OF THE R.E. HICKS GROUP LLC AN NFA REGISTERED INDEPENDENT IB.

I can be reached at 618-301-2244, 618-363-0252 sat phone 1-254-219-7336.

Note: Past Performance Is Not Indicative Of Future Results.