You couldn’t blame rice farmers for being a little puzzled by the numbers coming out of USDA’s crop production reports this year.
Many growers and marketing analysts were expecting lower rice production in 2005 after 2004’s record U.S. harvest of 230.8 million hundredweight. (Conventional wisdom says it’s difficult to have back-to-back record-breaking crops).
“If you read anything that was put out at the start of the year, it was forecasting 2005 production would be down compared to 2004,” says Steve Martin, an agricultural economist with the Delta Research and Extension Center at Stoneville, Miss.
“But each month the number has increased. It doesn’t take an economist to see that the latest USDA estimate for 2005 of 228.3 million hundredweight is pretty close to the 2004 figure of 230.8 million and could be the second highest crop on record, behind 2004,” he said.
USDA forecasts rice yields will be down in 2005 – 6,830 pounds per acre vs. 6,942 pounds per acre in 2004. That’s due, in part, to the damage done by Hurricanes Katrina and Rita whose influence reached far beyond the coastal regions of Louisiana and Mississippi.
“Mississippi was forecast to tie a record before Katrina,” Martin told economists attending the Southern Region Agricultural Outlook Conference in Atlanta. “But that’s still a good estimate even after Katrina.”
He said growers in the Mississippi Delta experienced a lot of “down rice” from Katrina, which meant they had to spend more time and diesel fuel lifting rice off the ground with their combines. But yields were not expected to be reduced significantly.
Historically, growers have rarely followed one year of record yields with another, but improved varieties and production practices appear to be changing that pattern. “2004 was the fifth year in a row for a record crop,” Martin notes. “And without the record production in 2004, the 2005 harvest would be another record.”
Economics have also played a role. U.S. rice producers increased their acreage substantially in 2004 after the smaller 2003 crop sent prices higher. USDA’s estimated the average farm price received for the 2003/04 marketing year was $8.08 per hundredweight or $3.67 per bushel.
Farmers planted 3.35 million acres of rice in 2004, an increase of 325,000 acres or nearly 11 percent from 2003. With the record yields in 2004, production rose from 2003’s 199.9 million hundredweight to 230.8 million hundredweight. USDA’s average farm price received for 2004/05 dropped to $7.33 per hundredweight or $3.33 per bushel.
“We had a tremendous production year in 2004, 230 million to 231 million hundredweight,” he said, “and we’ve been talking about that last year and all of this year. We’re still talking about as we try to market the ’05 crop.”
Domestic use increased from 115 million hundredweight to 120 million hundredweight and exports hit 110 million hundredweight, the second highest level on record.
“But, when it was all said and done, we wound up with ending stocks of 37.7 million hundredweight for 2004/05,” the economist said. “To put that into perspective, we started the 2004/05 marketing year with ending stocks of 23.7, which was the lowest level in 20 years. So ending stocks nearly doubled from one year to the next.”
Since higher ending stocks normally translate into lower prices, most observers expected farmers to plant fewer acres of rice in 2005. “Most of us had planted acres down for this year, but USDA’s recent estimates have put planted acres at 3.37 million, up slightly from 3.35 million in 2004.”
With last year’s ending stocks at 37.7 million hundredweight, near-record production of 228.3 million hundredweight and imports of 15 million hundredweight, rice farmers are looking at a record supply of 281 million hundredweight.
USDA is forecasting domestic use of 126.1 million hundredweight, a 5 percent increase over 2004/05, and exports of 121 million hundredweight, up 10 percent from last year’s second highest on record.
The record of 124 million hundredweight was set in the 2002/03 marketing year when Brazil purchased more than 200,000 metric tons of U.S. rice. “Brazil grows a sizable acreage, but they had crop problems during the 2002/03 crop year.”
Mexico has been the No. 1 export market for U.S. rice, purchasing about 600,000 metric tons annually, followed by Japan, the European Union and a host of Caribbean Basin countries, including a relative newcomer to the U.S. rice market, Cuba.
“We just got a little touch of this business last year, and it moved Cuba into sixth place for our exports,” he said. “In 2005, Cuba has backed off some because of policy issues. (New Treasury Department rules required Cuba to pay for U.S. rice before it left port, but Cuba recently announced it would buy 130,000 metric tons of U.S. rice.)
Iraq has also moved into the list of U.S. export markets for rice, purchasing about 100,000 metric tons earlier this year.
“We have not seen that market come back to the extent that many of us had hoped it would,” said Martin. “But Iraq has tremendous potential, and, hopefully, that will grow to the amount that Japan or even Mexico now purchase.
“If Iraq was to come in and buy 600 million hundredweight, which is where they were prior to the embargo back in the 1990s, it would be a big boost to our export market. Cuba could also have a positive impact on our sales.”
He says the U.S. rice industry needs Brazil or Iraq or Cuba or China to purchase more rice and reduce the world supply of rice, which, along with the large U.S. supply is helping to hold down world prices.
“Most of us tend to agree that China has reduced its stocks because it has not exported as much rice in the last two years,” Martin noted. “If they would buy more rice from Thailand or somewhere, it would help U.S. farmers because it would reduce the world supply.”
The supply numbers are expected to pressure U.S. prices for the remainder of the marketing year. “Some analysts expect USDA to lower the average 2005/06 price forecast because of that, but, if we could see Iraq or Cuba or China start buying more rice, it could get interesting.”