Even with a projected acreage increase, the market appears better than 2017 as long as demand doesn’t wane.
• By Kurt Guidry •
The current rice market continues to show strength despite the COVID-19 pandemic and the prospects for larger acreage and larger production levels in 2020. In Louisiana, current cash offers for old crop rice have been able to maintain generally favorable levels around the $23.50 per-barrel level (roughly $14.50 per hundredweight).
It is debatable just how much rice in the area remains unpriced, but the ability for the market to continue to support those levels generally points to the favorable current supply and demand dynamics. Price bids for the 2020 rice crop are currently being reported around $20 per barrel (roughly $12.35 cwt). Although this is at a discount to old crop prices, it is still a relatively strong price level given the potential for increased acreage and production in 2020 and the uncertainty regarding any long-term demand impacts from the COVID-19 pandemic.
Acreage estimates come into play
The biggest factor threatening to limit the market’s ability to maintain current prices is the expectation for more acres and production this year. In its 2020 “Planting Intentions” report, the U.S. Department of Agriculture projected planted rice acres at 2.85 million acres, up over 300,000 from 2019 and only 99,000 below 2018 levels.
Looking at long grain, the USDA pegged those acres at 2.1 million, which is up over 320,000 from last year and close to 2018 levels. Typically, an increase such as this would result in a negative reaction from the market. However, the market really hasn’t seen a significant downturn because even though USDA projected higher acres for 2020, they were lower than projections earlier in the year. This, along with the positive short-term supply and demand conditions, likely helped prevent the expected reaction from the market.
Exports remain strong
Despite the lower-than-expected acreage in the report, the numbers still suggest higher production and supplies for the 2020/21 marketing year. When these numbers are used to project overall supply and demand values, they result in ending stocks increasing to levels that rival 2018 for all rice and 2017 for long-grain, when prices averaged around $18.63 per barrel (roughly $11.50 cwt).
Assuming actual acres match planting intentions and a return to normal or trend yields in 2020, ending stocks are projected to be similar to 2017. The 2017/18 marketing year would logically provide the downside potential for 2020 crop prices. However, given the tight stocks heading into the 2020 production year, the 2020/21 marketing year has a much stronger foundation for prices then existed in 2017.
As long as there is no significant downturn in demand during the 2020/21 marketing year, prices should stay supported at or above those 2017 levels.
To this point, there has been no apparent significant downward trend in demand. Data through April 9 shows total rice export sales are 20% higher than the previous year while long-grain rough exports are 29% higher and long-grain milled sales are up 18%. This compares to year-over-year changes in exports expected to be in the 5% to 8% range.
If the current pace in export sales continues, it would suggest a further tightening of stocks before 2020 harvest. This could continue to support prices for longer into the 2020 production year than would normally be expected given the expectation for higher acreage.
Wet conditions may influence prices too
Another factor that could provide at least short-term support to the market is the current wet conditions in parts of the Mid-South.
As of April 19, the USDA reported only 30% of the rice crop planted. Arkansas was at 23% planted compared to the five-year average of 45%. It is at the same pace as last year when wet conditions resulted in a large number of prevented planted rice acres for that state.
While it is probably still too early to suggest significant rice acreage will not be planted, many areas will need drier conditions.
Currently, most of Arkansas and Mississippi are shown to have a crop moisture index rated as wet or extremely wet.
The seven-day forecast calls for another 1 to 2 inches of rain. Until conditions become more favorable for planting, risk premiums should continue to provide short-term support to prices.
While there are several factors that point to stable and supported prices for rice, the long-term outlook still would suggest some downward pressure on prices. Given current market information and projections, a logical projection for prices for the 2020 crop is in the $18 to $21 per-barrel range (roughly $9.88 to $12.98 cwt).
Current September 2020 futures prices are trading around $12 cwt, which would be viewed as being at the upper end of price projections for the average marketing year price.
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.