When examining the current market situation for rice, there seem to be two different sets of supply and demand fundamentals whether considering shortterm market movement or longer-term, new crop price prospects.
In the short term, the supply and demand conditions suggest relatively tight supplies. Despite experiencing record yields in 2013, many in the market suggest that much, if not most, of the 2013 crop is already sold and committed. What rice remains unpriced and in the hands of producers is believed to be looking for higher prices before moving into the market. For higher prices to materialize, demand and prospects for demand are going to have to improve from current levels. While the market got a boost from the January USDA supply and demand report, which increased domestic rice use by nearly four percent for the 2013/14 marketing year, it was partially offset by a one percent reduction in rice export expectations.
Domestic use continues to show signs of regaining the levels experienced prior to the quality issues that impacted the market several years ago. A high-quality crop in 2013 is expected to continue to help regain domestic markets, but the question becomes if it will be enough to create momentum for prices.
Offsetting some of the optimism in the domestic market has been the uneven demand in the export market. Through Jan. 16, 2014, total rice exports are down five percent from the previous year. And, export sales from our top five customers from the previous marketing year are down more than 11 percent from last year. While export sales to other countries have offset the slower pace in our largest customers, those purchases tend to be temporary and often do not signal long-term demand growth.
With Thailand and Vietnam prices still at fairly significant discounts to U.S. prices, it is difficult to project tremendous growth in export demand over the remaining months of the 2013/14 marketing year. Nevertheless, there are many that believe the tight stocks situation will eventually force prices higher over the next couple of months.
While it is fairly easy to see prices moving into the $26.00 per barrel ($16.05 per hundredweight) range in the short-term, it is difficult seeing any sustained movement above those levels given the concerns and uncertainty that remains regarding overall rice demand.
The price prospects for the 2014 rice crop are currently being shaped by projections that are calling for higher rice acreage, higher production and only slightly improved demand prospects. Rice acreage is expected to be up in 2014 as the price advantages that competing crops like corn and soybeans have enjoyed over the past couple of years seem to have evaporated.
Reports suggest that all but Texas and California could experience acreage increases in 2014. Both Texas and California are facing water issues that will likely their ability to alter acres in 2014 and, in fact, may reduce California medium grain acreage. However, increases in Mississippi, Missouri, Louisiana and, particularly, Arkansas are expected to more than offset any declines seen in Texas and California. Arkansas acreage could increase in the range of 300,000 to 400,000 acres if acreage moves back to five-year average levels from the 2013 levels. Assuming average yields in 2014, this increase in acreage is likely going to result in a significant increase in total rice supplies for the 2014/15 marketing year. With the stagnant and lackluster demand seeming to be the limiting factor for prices over the last few years, it is difficult to project enough demand growth to offset supply increases. So, without some type of weather related production difficulties either in the United States or somewhere around the world, it would appear that the 2014/15 marketing year will see increasing stocks and increased downward pressure on prices.
Given the current outlook, a reasonable price projection for the 2014 crop would seem to be in the $22.00 to $25.00 per barrel ($13.58 to $15.43 per hundredweight) range. With the tightness of current rice stocks being reported, new crop prices could be supported in the short-term. However, with projections for increased acreage and production, it is difficult to see them not at discounted levels to 2013 once we move closer to the 2014 harvest.