• By Kurt Guidry •
Tight stocks and favorable demand have helped support rice prices for much of 2020, which saw a large increase in rice acres and the potential for drastically higher production and supply levels. Historically, this type of situation would result in heavy downward pressure on prices.
While 2020 prices were lower than levels experienced in 2019, the price reduction was not nearly as significant as might have been projected. Weather concerns in key growing states likely helped to keep some risk premium in the market, and the increase in feed grain and oilseed prices has likely provided some spillover support to rice. But the biggest factor in helping to keep prices supported and relatively stable in 2020 were the tight stocks entering the harvest season.
Beginning stocks for the 2020-21 marketing season were the lowest since the 2003-04 marketing year. That, along with better-than-expected domestic and export demand, helped to support rice prices despite the more than 22% increase in total rice production.
Looking to 2021
The question that remains is whether prices will continue to be supported as we move through the 2020-21 marketing year and into the 2021 production season. Currently, prices have been relatively stable around the $20-per-barrel ($12.35 hundredweight) level. However, examining the overall supply-and-demand picture reveals that ending stocks for the 2020-21 marketing year are projected to increase by 77% from the previous year for all rice and by more than 120% for long-grain rice.
With those types of increases projected in stock levels, historically the expectation would be for downward pressure on prices. The market has been able to resist this downturn in prices, in part, due to demand.
Rice purchases to cover domestic demand along with relatively strong long-grain rough-rice exports have helped to prevent any significant downturn in prices to this point. Long-grain rough-rice exports are more than 12% higher than the previous year.
This has been mostly driven by Brazil, which has purchased more than 120,000 metric tons to this point in the marketing year versus none last year. With the increase in supplies and stocks, the market will need to continue to find new demand to support prices as it continues through the marketing year.
Unfortunately, where that new demand will come from is difficult to see. It appears that the purchases from Brazil may begin to slow significantly as there are no sales currently on the books. While there have been some rumors of a potential sale to Iraq, it has yet to materialize.
Increased production and supplies by competing export countries have helped to bring down their export prices, which will likely make it difficult for U.S. rice to find additional market share. By most accounts, short-term needs for the domestic market have also likely been met at this time, reducing the urgency for domestic users to source supplies.
All of these factors, along with the normal downturn in activity associated with the holidays, has kept the market quiet over the past several weeks, and it will likely continue to remain so over the next several weeks. While higher feed grain and oilseed prices may provide some spillover support to rice prices, it will take some additional positive demand-side news to keep prices supported once the market starts to gear back up after the holidays.
What’s in store for 2021?
Looking to 2021 production shows a mixed bag of factors. On one hand, total domestic stock levels to start the 2021 production and harvest year will be significantly higher than the previous year. While not up as significantly, world stocks are also projected to be higher.
One thing that could help offset those larger stock levels would be lower acreage and lower overall production in 2021. Higher feed grain and soybean prices could help pull some acres away from rice.
However, given current price levels, it is difficult to see a drastic reduction in total rice acres. In its baseline projections released in November, the U.S. Department of Agriculture estimated nearly a 400,000-acre reduction in rice acres for 2021, with most coming from long grain.
That large a decrease could offset the larger beginning stocks levels and keep prices around the $20-per-barrel range, assuming stable demand. As mentioned, it is difficult to see that large a decrease in acres. A reduction of only about 200,000 acres would put supply and stock levels that — without some type of increase in overall demand — would likely pressure prices down into the $18- to $19-per-barrel (low to high $11 cwt) range.
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