By January of this year the global economy once again was showing a strong level of economic growth, which was the product of a two-year rebound in global economic activity. This re-energized global economy coupled with the Western Hemisphere's demand for rough rice produced a strong appetite for U.S. rice, providing producers with excellent pricing opportunities in the second half of 2003 and the first of 2004.
What's next for the global economy and demand for commodities? The task at hand for policymakers and decision makers around the world is to transition from a recovery which achieved strong global growth and strong global demand for most commodities to a sustained level of robust global economic activity with strong demand for rice and commodities in general.
Why the pull back in rice prices? U.S. rice price weakness is at least in part coming as a result of the following: first, a reduced demand for long grain rough rice in the Western Hemisphere with emphasis on Brazil; second, with global rice stocks at dangerously low levels many major rice producing countries are re-emphasizing food security and promoting production; thirdly, the transitioning of the global economy from one of recovery with dependence on vast amounts of financial stimulus to one with a self sustaining expansion reducing available global liquidity and allowing for the correction in many commodity prices; and fourth, with global weather remaining fairly normal, our global competitors are responding to the increasing demand for rice.
What should rice producers expect now? In response to the mentioned stimuli a self-sustaining global expansion will generate continued healthy export demand for commodities including rice. Tight global rice supplies are problematic and will provide strength to the rice market. A little trade fairness should be the order of the day, but with food security such an important issue to major rice-producing countries with China and India being great examples, trade fairness will be slow in coming to the global rice market. Assume domestic and global rice production will become more competitive with each passing year because it will; make farm business decisions accordingly.
What are the chances of a self-sustaining global expansion and strong demand for rice in the global market? The quick answer is good and very probable. Achieving a sustained global expansion in a global economy as diverse as ours where vast differences exist from country to country between political, financial, judicial, and regulatory systems is no small task. A good example can be seen in the developed countries of the world and China where their respective leaders are tapping the economic brakes of their economies trying to sustain global expansion at a level that doesn't out run the available supply of commodities.
Is global rice consumption continuing to exceed production? World 2004/05 rice production is projected at 397.4 million milled tons, nearly 10.5 million tons above 2003/04. World consumption in 2004/05 is estimated at 413 million metric tons compared to 2003/04's 412.9 million metric tons. Assuming no major global climatic event, global production is closing the gap on consumption. Note the world is over due some climatic trauma, so developing global weather patterns need to be watched closely.
World ending stocks are dangerously low for 2004/05 and are projected by USDA at 68.0 million tons, 15.7 million tons below 2003/04. Ending stocks are the lowest since 1982/83 and the stocks-to-use ratio is the lowest since 1976/77.
What is the current U.S. and world milled price outlook? In their August supply and demand report, USDA estimates the 2004/05 U.S. rice crop at a record 221.6 million hundredweight, up 11 percent from 2003/04. Long-grain production is forecast at 160.9 million hundredweight the second largest on record behind 2001/02's 167.6 million hundredweight, while combined medium- and short-grain production is forecast at 60.7 million hundredweight, the third largest on record behind 1994/05's 64.3 and 2000/01's 62.1 million hundredweight U.S. all rice ending stocks for 2004/05 are projected at 33.9 million hundredweight, 37 percent above the 2003/04 level. U.S. long grain rice ending stocks for 2004/05 are projected at 17.1 million hundredweight, 23 percent above 2003/04 and U.S. medium grain ending stocks this year are projected at 15 million hundredweight, 65 percent above 2003/04.
USDA's season-average farm price for this marketing period is projected at $6.75 to $7.25 per hundredweight and compares to $7.48 per hundredweight for 2003/04.
U.S. rice exports for 2004/05 are projected at 107 million hundredweight, 6 percent above 2003/04. Combined milled and brown rice exports are projected at 72 million hundredweight (rough-equivalent basis) while rough rice exports are projected at 35 million hundredweight
In USDA's August Grains: World Markets and Trade World Report the following points are made regarding current rice prices:
World prices surged this month as demand for parboiled and white rice drove prices for Thai 100B up $16, with quotes currently at $246 per ton, FOB.
Vietnamese prices have also strengthened despite the government policy limiting the signing of new contracts. Viet 5 percent is currently quoted at $232 per ton, FOB, up $4 from last month. India's 5 percent is down $3 at $252 per ton, FOB.
U.S. No.2/4 long grain milled rice is currently quoted at $346 per ton, FOB, $60 less than last month.
The spread between U.S. and Thai prices has dramatically narrowed to $100 per ton compared to $176 last month.
Prices for U.S. No. 1/4 medium grain milled rice from California are quoted at $385 per ton, bulk, ex-spout Sacramento.
My expectation is for the global economy to achieve a healthy level of sustained expansion, which implies improving demand for rice globally. This coupled with dangerously low global rice stocks should continue strengthening the world rice prices. With North American and Latin American production returning to a more normal level, weakness in U.S. long grain export prices is expected, causing the spread between U.S. and Thai prices to further narrow.
For more information on the rice situation and outlook, go to http://www.aragriculture.org/agfoodpolicy/ricesitol/slides/Delta_Farm_Press_Graphics_08162004.pdf