Lower overall supplies, higher prices conspire to reduce demand for this year’s crop.
By Kurt Guidry
After struggling to find support for prices for most of 2016, the rice market has been able to enjoy moderate price increases to this point in 2017. Anytime the market experiences significant price shifts, it is generally a result of either a change to the supply or demand fundamentals of the market. In some cases, changes to both supply and demand can influence price movement.
The price strength experienced in 2017 has largely been associated with reduced rice acreage and overall rice supplies. Unfortunately, very little, if any, credit can be given to an improved demand situation for pushing prices to higher levels. As has been the case the past several years, uneven export demand continues to plague the rice market and limit upside price potential.
The 2017 U.S. rice crop was estimated to be 98 percent harvested as of Oct. 22. With the 2017 harvest essentially over, the focus will now turn to demand for the remainder of the marketing year.
Have prices hit a plateau?
Total supplies are expected to be much more manageable than in previous years with production expected to be down by 20 percent from 2016. Unfortunately, however, total rice use and demand is expected to be down nearly 11 percent as well.
While ending stocks are still expected to fall during the 2017/18 marketing year, the inability of demand to add to the momentum created by lower supplies has likely been the primary reason rice prices have stagnated over the last month.
Lower overall supplies and higher prices are likely the major culprits in the reduced demand figure. Through Oct. 19, total rice export shipments were down 33 percent from the previous year. While some of the rice export markets have performed well to start the marketing year, the uneven demand between rough and milled markets or between long-grain and medium-grain markets has continued to leave total rice exports at below the previous year’s levels.
After struggling in the $16- to $17-per-barrel ($9.85 to $10.50 cwt) range for much of 2016, rice prices improved in the spring and early summer of 2017. Currently in Louisiana, rice prices have been reported about $20 per barrel for long grain ($12.35 cwt) and $21 per barrel for medium grain ($12.96 cwt).
Prices have seemed to stall at these levels as demand has been unable to sustain the positive upward momentum.
Unless the market experiences a supply shock with lower production than originally anticipated, it is difficult to see much improvement from current levels.
While an additional 50 cents to $1 per barrel is not out of the question, the market will likely need a new outlook for supply or demand for this to happen.
2018 outlook depends on plantings
Looking to price prospects for 2018, much of the outlook will depend on plantings. In particular, the outlook will likely hinge on the number of acres planted in Arkansas. Arkansas represented more than 60 percent of the total reduction in acres in 2017.
If most of those acres come back into production in 2018, it is difficult to see prices maintaining their current level.
History would suggest that a portion of those acres will indeed come back into production next year.
This is particularly true given a lack of attractive alternative crops. With that assumption, prices for 2018 would be expected to fall back closer to levels experienced in 2016.
While improved demand could help the outlook for 2018, the inability of this market to establish consistent and sustained exports seems to limit the potential of being able to support prices with higher acreage and production in 2018.
Dr. Kurt Guidry is Southwest Region director and Extension economist with the Louisiana State University AgCenter in Crowley. He may be reached at KMGuidry@agcenter.lsu.edu.