• By Kurt M. Guidry •
Despite several challenges in 2020, the rice market has been resilient and has remained fairly stable. The first challenge was the large increase in acres in 2020, most of which were in long grain. Total acres harvested this season are estimated at just under 3 million acres, roughly 21% more than in 2019. A large increase in acres is typically associated with a large increase in production and available supplies. Rice production in 2020 is estimated to increase by more than 22% from the previous year.
But a smaller beginning stocks level is expected to leave total supplies more manageable at 9% over 2019-20.
The second challenge was the COVID-19 pandemic and the potential disruption of marketing channels and overall rice demand. Fortunately, however, domestic demand has remained strong with year-over-year increases expected for both the 2019-20 and 2020-21 marketing years.
Increases in world rice demand along with tighter supplies for major competing exporters helped to support rice exports for the 2019-20 marketing year. And continued supply tightness and increased prices for some competing countries are forecasted to keep U.S. rice competitive in many outlets. The end result is that total rice exports are projected to see year-over-year increases for the 2020-21 marketing year.
The third challenge was the adverse weather that impacted much of the rice-growing area. In Louisiana, two hurricanes made landfall, affecting rice production as well as industry infrastructure. In addition, surrounding states were impacted with heavy winds and excessive rainfall that helped delay harvest.
However, besides Louisiana, which saw initial yield estimates fall by more than 300 pounds per acre due to the storms, other rice-producing states saw yields drop only marginally or actually increase from their original estimates. While weather concerns likely helped to keep some risk premium in the market, the final expectations for the 2020 crop is for overall yields to be up about 1.3% from the previous year.
What’s behind the firm market?
With all of the challenges faced by this market and with the large increases experienced in both acres and production, why has the market not seen a more significant downturn in prices? Much of its ability to maintain prices around $20 per barrel ($12.35 per hundredweight) was likely tied to two situations. First, total rice supplies were very tight ending the 2019-20 marketing year.
Strong domestic demand and relatively strong export demand over the last half of the marketing year helped tighten supplies and keep prices supported and sensitive to supply-and-demand fundamentals. With tight supplies, additional risk premium tends to be added to the market, helping to support prices.
With the uncertainty regarding yields and quality related to the weather, this likely has had to keep prices supported. However, now with harvest essentially completed (96% complete as of Nov. 1), the question becomes, how long will prices remain supported with increased supplies?
As is typically the case with the rice market, the ability for prices to remain supported will depend on the pace of demand. As mentioned earlier, expectations are for demand to continue to improve during the 2020-21 marketing year.
Export demand for 2020-21 is estimated to be up over the previous year by more than 5% as tighter world supplies, increased world demand and more competitive U.S. rice prices all help boost sales. However, so far this marketing year, cumulative export shipments are down by nearly 45% from the previous year. This slow start does bring some concern about longer-term demand.
Given the market’s ability to maintain prices likely leaves rice a competitive alternative for acres in 2021. Currently, there is no significant reason to suggest a major downturn in 2021 rice plantings.
That, along with continued concerns about the consistency of overall exports, dampens the longer-term outlook for prices, which are expected to remain in the $20-per-barrel range in the short term. Longer-term outlook for prices into the 2021 production year would show increased supplies and stocks, putting some downward pressure on prices.
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.