Dark cloud hangs over market

 

To create positive momentum and remove the cloud moving forward, demand and accompanying sales will need to increase.

By Kurt Guidry
Screen Shot 2015-04-16 at 11.47.46 AMWhile there were no changes made in the supply and demand numbers released in the April release of U.S. Department of Agriculture’s World Agriculture Supply and Demand Estimates report, the projected 2015/16 marketing year average price range was reduced by 20 to 30 cents per hundredweight. This reduction in the expectation for price reinforces the general stale feel that has existed in the market over the past several months.

Helping create this less-than-optimistic view was USDA’s March 31 Planting Intentions report showing rice acres increasing by more than 400,000 acres in 2016 to just more than 3 million acres. All of the major rice-producing states are expected to increase plantings, with Arkansas leading the way with more than 200,000 additional acres in 2016.

Although there was some thought that heavy rains and flooding in parts of the Delta and Texas might affect acres, the April 18 USDA Planting Progress report shows 48 percent of rice acres have been planted compared to an average of 36 percent over the previous five years.

While Texas and Louisiana report planting progress in line with their five-year averages, all other states show a significantly quicker pace in 2016 than in previous years. So, despite the weather concerns, it appears that this 2016 crop is off to a generally favorable start.

There could be some adjustments in acres if we continue to get rain delays or in response to the recent rally in soybean prices, but there is little to suggest that we will see a significantly lower acreage number for 2016 than the one projected in the Planting Intentions report.

To this point, much of the fresh fundamental supply-and-demand news for this market has been the potential for increased production and larger supplies for the 2016/17 marketing year. For a market that has historically struggled with finding consistent and reliable demand, the news of higher supplies is certainly enough to place a dark cloud over it.

Iraqi sale buoys hopes; more are needed

To create any type of positive momentum moving forward, this market will need to start seeing more consistent positive news on the demand side. One bit of good demand news was USDA’S Export Sales Report showed a very strong week (April 18) with sales up significantly from both the previous week and the previous four-week average.

Leading the way was a 90,000 metric ton sale of long-grain milled rice to Iraq. It is believed that roughly 60,000 metric tons of this sale will come from South Louisiana with the remaining balance coming from Arkansas.

Although this will help keep those mills busy, it is believed that much of the rice needed to fill the order has already been secured and may offer only minimal support to prices. Nevertheless, this is the type of business this market needs on a much more routine basis to begin to start removing the dark cloud and moving prices higher.

Despite the positive export numbers, the reality of the rice market is that significant old crop supplies and prospects for increased production in 2016 is likely to limit price movement. Without some type of weather-related event to curtail expected 2016 production or a boost in total rice demand, it is difficult to see any positive momentum being generated.

Prices for old crop rice in Louisiana have been reported the $17 to $18 per-barrel range ($10.50 to $11.11 cwt). New crop rice price offers, however, have been few and far between. The last report put new crop bids in the $16.50 per-barrel to low $17 per-barrel range ($10.20 to $10.50 cwt).

Those bid levels have certainly not generated much producer interest. However, without an improvement in the fundamental supply-and-demand outlook, there seems to be little incentive for buyers to push offers higher. Given the current fundamental conditions and outlook, it appears prices for the 2016/17 marketing year are likely destined for a level somewhere in the mid-$14 to mid-$17 per-barrel ($8.95 to $10.80 cwt) range.

Dr. Kurt Guidry is an agricultural economist with Louisiana State University’s AgCenter. Contact him at KMGuidry@agcenter.lsu.edu.