Market challenges

Medium-grain exports strengthen as long-grain export demand continues to struggle.

By Kurt Guidry

GrainBinPhotoBloydThe rice market continues to struggle with finding the consistent and stable demand needed to help support and strengthen prices. Despite lower overall rice production and supplies for the 2015/16 marketing year, the market has been unable to show consistent price improvement.

While the U.S. Department of Agriculture slightly increased yield and overall production for both long-grain and medium-grain rice in its January supply and demand report, total rice supplies remain 30 million hundredweights lower than last year and in line with supplies experienced during the 2013/14 marketing year. This situation is also true for long-grain rice, which has similar supply levels as the 2013/14 marketing year.

But unlike the 2013/14 marketing year when the average farm-gate price was $15.40 cwt (nearly $25 per barrel), cash prices thus far for the 2015/16 marketing year have been mostly in the $11.70 to $12.35 cwt range ($19 to $20 per barrel). The major culprit for the market’s inability to improve prices seems to be sporadic demand, particularly export demand.

At first glance, it appears that rice exports have been strong, running about 20 percent higher than the previous year through the first week in January. In fact, USDA did increase export expectations for rice slightly in its latest supply and demand report. However, closer examination shows that much of the increase is attributed to stronger medium-grain sales, and while up, long-grain exports still lack the needed consistency to provide for sustainable price strength.

After a slow start to the marketing year, medium-grain export sales have shown more consistency and have pushed cumulative sales to nearly 50 percent higher than last year.

Positive supply and demand fundamentals
For long-grain sales, a strong start to the marketing year brought optimism for export demand. Columbia made large purchases of long-grain rough rice and shipments of long-grain milled rice were made to Iraq and Iran. Cash prices responded, improving to about $12.35 cwt ($20 per barrel). However, lack of consistent follow-up demand has since allowed cash prices to settle back down in the $11.10 to $11.75 cwt range ($18 to $19 per barrel). This highlights the difficulty of this market to generate a sustained improvement in price.

While consistent demand has been elusive thus far, there are some positive supply and demand fundamentals that would suggest at least the ability to attract more demand for the U.S. rice market. Global production and stocks are down significantly from the past two years, and global rice consumption is projected to be a record.

This provides some optimism for continued improvement in rice sales. Positive developments in the ability to move U.S. rice into countries, such as China and Cuba, also bring hope of stronger demand ahead. Until this potential demand becomes reality, it seems apparent that the rice market will continue to struggle.

Short-term price strengthening somewhere in and around the $12.35 cwt ($20 per barrel) level could be seen as we move past the inactivity in the market that typically characterizes the start of the calendar year. Long-term price movement will be dependent on the performance of demand and the potential size of the 2016 crop. With a lack of attractive cropping alternatives and some relief in the drought conditions in Texas and California, it is expected that rice acres will remain relatively flat for 2016.

If that were to happen, it is easy to see prices maintain in the $11.75 to $13 cwt ($19-$21 per barrel) range. Conversely, a sharp increase in acres and production in 2016 could push prices back to the low levels experienced during the summer of 2015.

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