Rice Outlook: A Global Balancing Act

The global rice market is doing a balance act, based on comments by Nathan Childs, senior economist for USDA’s Economic Research Service.

Childs, a regular and well regarded speaker at the USA Rice Outlook Conference, reported this week that global production was very strong in the 2005-06 season. But, that has been somewhat offset by increased consumption and a continued draw down by China of its stocks.

U.S. rice prices are strong, but export opportunities aren’t really growing. Recent gains in the Middle East and Latin America won’t offset export sales lost to the EU after the GMO rice controversy developed.

Here’s a synopsis of his presentation:

For the 2006-07 season, global production was the largest on record. A wide range of countries produced record or near-record crops. China, Indonesia, the Philippines, Bangladesh, Pakistan and sub Saharan Africa came out ahead of normal yields. Global supplies are up by nearly one percent, the second year in a row with an increase after four to five years of declining supplies. That downward trend had been due mainly to China reducing its farmers incentives for increased production, coupled with a steady draw down on its stocks. Although a large importer going into the 21st Century, China has reached a point of equilibrium in which is neither a rice importer nor a significant rice exporter.

Although consumption continues to outpace production, the overall rate of global trade is either stagnant or down somewhat. Any increases in buying from some countries have been offset, in part, by those stronger yields noted above.

Due to offsetting consumption rates and a concerted effort by China to draw down its supply, stocks will decrease about 2%, resulting in the lowest stocks-to-use ration since the early 1980s.

The overall global outlook is for higher prices in 2007, with Thailand’s intervention buying program helping to further tighten available export stocks. The lingering Australian drought and two years of below-average crops in California, will continue reducing that part of the medium grain inventory and keep that market trending upward..

Bullish factors for global long grain prices include: higher prices for fuel and fertilizer; a tighter supply situation in the U.S. and Vietnam; the Thai government’s intervention buying; and the continued trend for consumption to outpace demand, however slightly.

Bearish factors for global long grain prices include: weaker import demand from big Asian countries that harvested record or near-record crops; and potential “bounce back” from Vietnam after several years of short crops due to weather.

One factor that has further dampened global trade has been a string of good crop years in Indonesia. The country accounted for 25% of all world rice trade in the 1970s and became self-sufficient for a brief period in the 1980s. After that, it once again returned as a net buyer until its yields rebounded over the last three to four years. “But, we project that Indonesia cannot maintain this self-sufficiency over the long term and will eventually be back in the market,” Childs said.

Loss of European Union sales due to the genetically engineered rice flap has clearly reduced U.S. exports, Childs said. “The EU was 10% of the Southern long grain crop,” he noted. To make up for those lost sales, the U.S. would have to capture business in countries that already are “price sensitive” and are less willing to pay the difference between U.S. prices and what other exporting countries might charge, he added. New business in the Middle East and Latin America won’t be enough to compensate, he said.

U.S. domestic consumption is up about 3%, which has been a regular trend in recent years. Most of that can be traced to population growth, Childs said. U.S. importation of rice set a record at 18 million hundredweight, mostly in jasmine and basmati varieties.

Forecasts of a rice market in the range of $7.62 to $9 have panned out, Childs said, “but there isn’t a lot of rice moving at that price. So, it’s a mixed bag at this point.” Exports are down 16%.

U.S. average farm prices are the highest since 1997-98 when the market was driven by El Nino events that heavily damaged Asian crops. “This time, prices aren’t driven by the weather,” Childs said. “There are cases where farmers are reluctant to sell.”