Strong exports help buoy the market and point to higher prices

• By Kurt Guidry •

export ship

Based on data from the U.S. Department of Agriculture’s Foreign Agricultural Service, total accumulated rice exports to this point of the 2019/20 marketing year are more than 44% higher than the previous year — photo by Vicky Boyd

When examining the market environment for the 2019 rice crop, there are several factors that could be pointed to that would suggest the potential for stronger prices. Adverse conditions at planting, challenging growing season conditions, and lower acreage and production expectations all would suggest higher prices.

But despite these supply-side signals, prices during the first half of 2019 found it difficult to make any significant and sustained move from the $17 to $18 per-barrel range ($10.50 to $11.11 per hundredweight). There are likely a few factors that could be pointed to that provide some basis for this lack of price strength.

First, despite the prospects for lower overall production, concerns about the potential quality of the crop likely caused a wait-and-see approach to pricing the 2019 crop. Second, available supplies or stocks of rice to begin the 2019/20 marketing year were over 50% higher than the previous year and more than 10% higher than the previous five-year average.

This high stock level provided more of a cushion and likely made the market less sensitive to the overall lower production prospects for the 2019 crop. The final factor was the lackluster export demand experienced to start the 2019 calendar year along with the uncertainty regarding trade policy and trade negotiations.

The combination of these factors likely combatted the positive momentum that should have been created with lower acreage and production expectations and therefore limited the market’s ability to mount any kind of sustained price improvement.

Prices are inching up

However, over the past couple of months, we have seen prices begin to inch higher, and they’re now being quoted in the $19 to $19.75 per-barrel range ($11.73 to $12.19 cwt). There are a few reasons why we are starting to see this market finally start to show some life. First, harvest is essentially complete with only a few second-crop acres to be harvested.

While yield reports have been somewhat disappointing, quality has generally been reported as good, decreasing some of the earlier concerns over quality and its impact on market potential. The biggest factor helping to support prices has been improved demand.

Increased sales to Iraq has highlighted export demand, which has been very strong to this point in the marketing year. Based on data from the U.S. Department of Agriculture’s Foreign Agricultural Service, total accumulated rice exports to this point of the 2019/20 marketing year are more than 44% higher than the previous year.

For long-grain rice, accumulated rough rice exports are 28% higher while milled rice exports are more than 41% higher.

Will the strong export pace continue?

The question becomes whether this pace of export sales can continue for the remainder of the marketing year.
Since 1990, long-grain milled rice export sales through the third week of October represent, on average, roughly 22% of total marketing year export sales. If that relationship holds, then total long-grain milled rice exports for the 2019/20 marketing year would be projected at more than 52% higher than the previous year.

Reaching that projected target would likely require continued strong sales to Iraq, a highly uncertain proposition. However, while the uncertainty with Iraq along with the price competitiveness of U.S. rice in the world market may eventually limit the ability to reach those projections, it still does point to the positive tone that export demand is currently providing this market and the potential it has for creating additional positive momentum for prices.

When viewing all of the factors that are currently shaping this rice market, it is easy to have a positive view of the potential future direction of price movement. With prices currently in the $19 per-barrel range ($11.73 cwt), it is easy to see the market going to the mid-$20 per-barrel range ($12.65 cwt) over the next few months.

With USDA increasing its expectations for total rice production by nearly 2% in its October 2019 projections, any movement above that price level would likely require sustained export demand strength along with avoiding any further increases in projections for total rice supplies.

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.