• By Kurt Guidry •
The rice market has been quiet over the past couple of months with cash prices moving in a fairly narrow range. Some of this lackluster activity has been the normal seasonal slowdown typical of the holidays and the start of the new calendar year.
But some of the quietness has been due to a lack fundamental supply and demand information as U.S. Department of Agriculture reports were delayed with the government shutdown.
In early February, the USDA released its first supply and demand report of the 2019 calendar year. For rice, the report only added to the supply and demand dynamics that have weighed heavily on the market for much of the marketing year.
Although the report made some minor changes to the medium- and short-grain balance sheets, the most significant changes were made to the long-grain supply and demand picture. Increases in the estimates for both harvested acres and yield resulted in a 3.5 percent increase in total long-grain production from the December report.
The current estimate for 2018 long-grain rice production stands at more than 28 percent higher than the previous year. While the USDA also increased total long-grain use in the latest report, the current estimate is only about 7 percent higher than the previous year.
Ballooning ending stocks
The result is a ballooning ending stocks value that is more than 70 percent higher than the previous year and more than 12 percent higher than the 2016/17 marketing year. Ending stocks for long grain are now estimated at 34.8 million cwt for the 2018/19 marketing year.
Since the 1982/83 marketing year, long-grain ending stocks have only been above 30 million cwt six times or only about 16 percent of the time. In those years, the marketing year prices averaged in the low $9 cwt (mid $14 per barrel) range. While past history doesn’t always highlight the potential path of prices moving forward, it does show the type of supply and demand environment that this long-grain market faces heading into the 2019 growing season.
Before the February report, there was some hope that the stronger demand seen in the first half of the 2018/19 marketing year might help stabilize prices and push them moderately higher.
Export sales were running roughly 6 percent ahead of last year’s pace, and Iraqi purchases brought hope for increased business with that country. While the USDA did seem to reinforce the stronger demand by increasing both export and domestic use expectations, the large increase in supplies has likely limited the market’s ability to push prices significantly higher.
So now, the market must focus on the 2019 planting and growing season to see if there is anything to warrant higher prices.
Early projections suggested 2019 planted acres to be steady to slightly lower. Reports at the end of 2018 suggested Arkansas could reduce plantings by 120,000 to 150,000 acres. Other rice-producing states suggested acres to be relatively stable for 2019.
Despite the difficult supply and demand situation faced by the long-grain market, a lack of significantly more attractive alternatives will likely seem to limit the shift of rice acres to some other commodity in 2019. One thing to keep an eye on is weather conditions over the next several weeks.
Given the wet fall and winter experienced by most rice-producing states, a continuation of those conditions could affect land preparation and eventually lead to adjustments in planting intentions.
USDA report limits pricing hopes
Current cash prices for rice are reported in the $17 to $18 per-barrel ($10.50 to $11.10 cwt) range. Although there was some hope prices could move to the $19 to $20 per-barrel range, this latest USDA report probably limits that ability.
A longer-term price outlook will likely depend on how much of the 34.8 million cwt ending stocks can be whittled away during the 2019/20 marketing year. With a 200,000 acre reduction and assuming trend line yields and constant demand from the 2018/19 marketing year, ending stocks for the 2019/20 marketing year would still be projected at more than 30 million cwt.
To get ending stocks back to more manageable levels, the market would need either a much larger reduction in supplies through either lower acres or yields or higher-than-expected demand. Even if you assume demand for the 2019/20 marketing year would be at the highest levels over the past 10 years along with 200,000 fewer acres, ending stocks are likely to fall only to the low to mid-20 million cwt level. Unless a major unforeseeable event happens, it appears that prices for the 2019 crop will likely remain in the $17 to $19 per-barrel (10.50 to $11.72 cwt) range.
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.