Simple economics

With an imbalance between supply and demand, lower production and supplies will be needed in 2017 to strengthen prices.

Mississippi River bargeBy Kurt Guidry

The rice market in Louisiana and much of the Southern rice-growing states continues to be pressured with large supplies and uneven demand. This has resulted in a stagnant market with prices in Louisiana trading in the same tight range for much of the 2016/17 marketing year.

The release of the U.S. Department of Agriculture’s World Agricultural Supply and Demand Estimates report on Feb. 9 will likely not provide any momentum to the market with the only change made being a reduction in long-grain rice export estimates. If anything, the report has likely made it more diffi cult for prices to make any sustained movement higher.

The issue for the 2016/17 marketing year is simply a situation of supply and demand imbalance. Long-grain rice supplies have increased by more than 16 percent from the previous year while export sales thus far in the marketing year are 3 percent lower for long-grain rough exports and a whopping 28 percent lower for long-grain milled exports.

Although the pace of export sales has improved over the past couple of months, a ack of purchases from traditional customers like Iran and Iraq and a slower pace of sales to other customers like Columbia continue to create uncertainty about export demand moving forward.

How many acres will Arkansas plant?

Without demand providing a spark for the market, the potential for lower production and supplies in 2017 will likely have to lead the way for any price strengthening.

The general market consensus is that acres will fall in 2017. While acres are projected down for states like Texas, Mississippi and Missouri, they probably don’t represent enough decrease to create a significant price move.

A lack of alternative crops in South Louisiana and the lure of planting rice on generic acres in North Louisiana will mean only marginal changes in acres in 2017. Therefore, the ability of prices to experience significant improvement will likely depend on acreage movement in Arkansas.

Early reports suggest Arkansas acres falling to as low as 1 million to 1.1 million acres from the nearly 1.6 million acres planted in 2016. Although it seems likely that acres in Arkansas will fall, it is still difficult to fully project them dropping below the five-year average of about 1.3 million acres.

A reduction of U.S. rice plantings around the 300,000-acre level would hopefully provide enough support to move prices from their current $15 to $16 per barrel ($9.25 to $9.90 per cwt) range.

A logical projection for the 2017 crop with that level of acreage reduction would be $17 to $18 per barrel ($10.50 to $11.10 per cwt). Any potential for prices much above that range will likely require a larger reduction in U.S. acres in 2017 and/or a major weather event hampering world rice production.

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