• By Kurt Guidry •
The improvement in rice prices over the last half of 2019 and the start of 2020 certainly has created a great deal more optimism in the rice industry.
While it likely took longer than most would have preferred, the reduction of available supplies with the smaller 2019 crop coupled with stronger export prices being seen in the market.
In December 2019, long-grain cash prices in Louisiana were trading in the $20 to $20.50 per-barrel range ($12.35 to $12.65 per hundredweight).
And while prices are typically stale in the first few months of a calendar year, cash prices have surged higher and are now being reported at $22 per barrel ($13.58 cwt) and higher levels.
This strong move in rice prices has likely been a result of buyers attempting to cover their needs with dwindling rice supplies.
With the perception that most of the rice in the area has already been marketed, what small supplies remain have been reported to attract prices as high as $23 per barrel ($14.30 cwt). This shortage in available supplies will likely keep a strong tone to prices in the short term.
Tight stocks
Despite revisions by the U.S. Department of Agriculture in its February report, the short-term supply and demand fundamentals remain very positive for this market.
Even with the USDA increasing its expectations for total rice imports for the 2019/20 marketing year, ending stocks for the 2019/20 marketing year are still 33% lower than last year for all rice and are a whopping 56% lower for long-grain rice.
The increase in expected rice imports likely reaffirms the general consensus in the market of tight domestic supplies. This looks to continue to support prices as long as there is no significant downturn in demand.
While history would suggest that export demand in the last half of the 2019/20 marketing year may not be as strong as the first half, cumulative rice export sales continue to outpace last year’s level through the first two weeks in February.
Long-grain rough rice exports are nearly 32% higher than last year while long-grain milled rice exports are nearly 12% higher.
The longer that exports continue to outpace last year’s pace, the more potential for prices to remain supported and, more importantly, the more potential to continue to tighten supplies heading into the 2020 production year.
Limiting the amount of rice carried into 2020 will be important because current expectations are for rice acreage and production to increase significantly.
USDA projections
The USDA released its first glimpse of the potential supply and demand situation for the 2020/21 marketing year at its Agricultural Outlook Forum, Feb. 20 and 21. During that event, the USDA projected total rice acres in 2020 at 3.07 million acres, an increase of 530,000 acres from the previous year and the largest level since 2016. Long-grain acres are projected to increase by 570,000 acres to 2.35 million acres while medium- and short-grain acres are expected to fall by 20,000 acres from the previous year.
Coupling those large increases in long-grain acres with a return to trendline yields in 2020 would leave total supplies more than 16% higher than 2019. Despite the USDA being very optimistic about demand for the 2020/21 marketing year, the large increase in projected supplies would push ending stocks for long-grain rice as well as all rice back to the levels seen during the 2018/19 marketing year.
With USDA’s February 2020 projections for the 2020/21 marketing year, the marketing year average price for long-grain rice will likely be in the range of $17 to $19 per barrel ($10.50 to $11.75 cwt).
What’s behind the price projections?
While this is certainly a significant discount to current prices and paints a much less optimistic picture, there are several factors that could change those projections moving forward. Much of those projections are based on the assumption of a sharp increase in acres in 2020.
If anything, last year’s planting season and the excessive rainfall showed that those projections are far from a certainty. Without that significant increase in planted acres, the supply and demand fundamentals are much more conducive to prices around current levels.
Until the market has more certainty regarding 2020 acres and potential production, there should be support for prices. In addition, tight stocks should help offset some of the expected production increase and is often associated with more pricing opportunities.
Tight stocks typically make markets more sensitive and reactive and can create pricing opportunities. So while the long-term prospects for prices are certainly at discounted levels, the positive tone currently in the market and tight stocks may provide producers with pricing opportunities for the 2020 crop at levels closer to those being seen now.
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.