A common irritant for producers is basis. Brothers said on Feb. 2 “futures were at $16.17. I looked at many angles on what the cash price was — I used the mid-range price (of $12.50).

“The simplest thing to say about basis: the difference between what the futures market says (a commodity is worth) and what you can sell it for, cash. Cash will often rule.” So, for the figures cited above, “the implied basis is $3.67. At that time, Riceland was at $3.30 — very competitive with what was going on.”

Another factor in the rough rice price “is something I don’t hear a lot about. But if you go back to 2009, our average long-grain milling yield was 61/70. (That means) if you have 100 pounds of rough rice, 61 pounds is ‘fancy’ rice. The difference between 70 and 61 is 9 — that’s your brokens. The difference between 70 and the initial 100 pounds is 30 pounds — about 10 pounds of bran, 20 pounds of hulls.”

In 2009, the industry saw exceptional milling yields at 61/70, “some of the best yields I’ve seen in my career.”

Conversely, in 2010, “we saw the worst millings I’ve seen in my career. The average long-grain milling yield is about 51/66.”

With a 51/66, “there aren’t many premiums. The discount on a loan value is 25 cents. There is nothing the producer or (miller) can do about that. That’s 25 cents per bushel coming out of your pocket.

“But if you go to the cash market … and revalue the (past) two milling yields, the real impact to the marketplace is 75 cents per bushel. My point is, if the miller is discounting you 25 cents and is realizing a 75 cent discount in the market, he’ll try and pick that up in the basis.

“So, right there, is 50 cents per bushel over $1 hundredweight of the basis that’s just in that milling yield disparity.”

What about the same calculations for medium-grain? “In 2009, it was a 62/69 and this year it’s a 52/66. Normally, you’re discounted at loan value, which is 21 cents. But the buyer of the rice is taking more than an 83 cent-per-bushel discount when merchandising into the cash market.

“Someone said, ‘why doesn’t the Rice Federation do something about this basis?’ I think you have to be very careful with that. In my opinion, futures are too high. … If you take futures down and get blamed for a lower price, you’re in trouble with the farmer. I keep saying to the Federation and anyone who’ll listen: ‘this will take care of itself. Just give it time.’”

In 2008, the Thai price was $1,000 per ton ($45 per hundredweight). The CBOT price, at that time, was at a high of $24 per hundredweight. However, the ratio between milled and rough rice was 53 percent.

“All I’m doing is dividing the $45 into the $24 for a ratio. Coming forward to Feb. 3, 2011, the Thai price was $530 per ton ($24 per hundredweight on a milled rice basis). The Chicago futures were at $16. Now, the ratio is 67 percent.”

If 53 percent was right in 2008, said Brothers, “then 67 percent can’t be right in 2011. So, I come forward and say if you take the Thai milled rice price at $24 and use that 53 percent ratio, the CBOT price should be $12.70.”

The last week of February, rice futures hit $13.25. “I’m not sure futures won’t go lower. I think this is a low range as long as the Thai price stays at $530. … I know that’s not so friendly to rice, but it’s what we’re dealing with.”