Monday, September 27, 2021

Positive outlook

Expected acreage reductions should yield a manageable crop that will help support prices

• By Kurt Guidry •

young seedling
The number of acres ultimately planted this season will likely affect the overall price picture for the 2021-2022 marketing year — photo by Bruce Schultz, LSU AgCenter

With rice planting continuing to move forward, the number of acres ultimately planted will likely be important to the overall price picture for the 2021-2022 marketing year. In its planting intentions report, the U.S. Department of Agriculture pegged 2021 rice acres at slightly over 2.7 million.

This would be down about 320,000 acres from the previous year, with most of that reduction (about 63%) coming from Arkansas. Much of the reason is believed to be a shift from rice into competing commodities. Prices for corn, soybeans, grain sorghum and, to some extent, cotton, have increased to levels at which they are attractive alternatives in some areas of the rice-growing region.

There is even some sentiment that rice acres could be lower than USDA’s current projections. New crop corn and soybean prices have seen fairly significant increases over the past two months, which some believe could have shifted even more acres away from rice since the USDA conducted its planting intentions survey.

Weather at planting

Another factor that can and usually does determine where acres end up is weather conditions at planting. Through April 18, USDA estimated that about 33% of the total U.S. rice acres had been planted. This compares to a five-year average of about 41%. Unfavorable soil moisture and weather conditions have seemed to be the major factors in the slow planting progress for states like Louisiana, Missouri and Arkansas.

While forecasts of drier-than-normal conditions over the next several weeks hold promise that producers can catch up, any further delays could prompt additional acreage shifts. This is particularly true with new crop soybean prices approaching $14 per bushel. While California has not yet begun to plant rice in earnest, there is some uncertainty about the acres that state will ultimately plant. Much of California is under severe to extreme drought conditions.

Positive outlook for 2021-2022

USDA’s projected acreage reductions for the 2021 crop year, along with the potential for even lower levels, help provide a positive outlook for the 2021-2022 marketing year. Production and supplies will not be as tight as they were in the 2019-2020 year when acres fell to 2.55 million, but they should be manageable enough to provide some support to prices.

However, lower production, by itself, will not likely be enough to eliminate all price risk heading into the 2021-2022 marketing year. Demand will have to also play a part. Despite the concerns of how the COVID pandemic might affect it, there was actually a significant increase in domestic use for rice in 2020.

Over the previous 10 years, domestic use averaged just less than 130 million hundredweights per year. But based on strong use in the last half of 2020 (the first half of the 2020-2021 marketing year), USDA increased its estimate to 160 million cwt, the highest on record and an 11% increase over the previous year. Some have suggested that consumers staying home due to the pandemic and having more at-home meals as one reason for the large increase.

Export demand has not faired as well, with shipments in the last half of 2020 running significantly behind the previous year’s pace. Shipments have seemed to rebound somewhat over the past couple months, but year-to-date sales are still nearly 9% behind last year. As the United States and world continue to relax COVID restrictions, it will be interesting to see how this affects overall rice demand.

Lower production should limit market risk

In its April 2021 supply and demand report, the USDA reduced its expectations for both domestic use and exports for the 2020-2021 marketing year by 2 million cwt. The reduction in domestic use was the first decline this marketing year while the reduction in exports was the fifth consecutive month. While this is not necessarily a sign of how demand will respond as we continue to relax COVID restrictions, it does create the potential for higher available stocks to start the 2021 crop year.

Currently, prices reported for rice in Louisiana are about $23 per barrel ($14.20 cwt) for the small amount of the 2020 crop that remains unsold and $20 per barrel ($12.35 cwt) for new crop rice. Despite reduced acreage and production, higher beginning stocks and the uncertainty about demand will likely keep some pressure on the market in the short term.

While there is some downside risk, it would seem that the lower production expectations in 2021 will help limit it. Upside potential will depend on how demand performs throughout the year and how much the market can whittle away at stock levels.

Given all of the factors currently facing this market, a logical projection for an average price in the 2021-2022 marketing year seems to be in the $19 to $22 per-barrel range ($11.72 to $13.58 cwt).

Dr. Kurt Guidry is Southwest Region director and Extension econ-omist with the Louisiana State University AgCenter in Crowley. He may be reached at KMGuidry@agcenter.lsu.edu.

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