Rice: So, Why Has The Market Turned Lower?

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Compared to the other major crops, rough rice futures look relatively unscathed in the aftermath of the August 10 USDA reports. Corn, soybeans, wheat and cotton have all lost 4 to 7% over the past week.

As for rice, the September contract will finish the week lower, but only about 1.5% below where it traded prior to the August WASDE. Friday’s settlement for September contract was $12.145/cwt.

To recap the USDA’s August adjustments to the U.S. long-grain balance sheet:

  • Production was trimmed 4 million hundredweight (mcwt.) to 132.4 million. This is a significant 34.1 mcwt. drop from 166.5 million last year.
  • A specific long-grain yield estimate was not provided in the August supply/demand tables. Assuming USDA is using the estimates from the June NASS Acreage report, it would appear the current U.S. long-grain yield estimate is roughly 7,277 pounds per acre or 161.7 bushels.
  • This yield is right in line with the 5-year average for long-grain.
  • Further adjustments to the new crop long-grain balance sheet included a 2 mcwt. reduction in domestic use to 90 million. Exports were unchanged at 77 million.
  • Ending stocks were cut by 2.2 million to 17.7 million hundredweight, from 19.9 million last month and 31.3 million last year.
  • The mid-point of the 2017/18 producer price range was increased by 13 cents to $5.40 per bushel.
  • World ending stocks were near unchanged from last month at 122.92 million metric tons.

In Monday’s Crop Progress report USDA indicated rice harvest was ongoing in a few states and is running slightly ahead of the five-year average.

Harvest is most active in Louisiana and Texas with variable yields and quality being reported in Louisiana and good yields and quality reported in Texas. Harvest progress in both Louisiana and Texas is further along than the 5-year average pace for the week ending August 13.

Overall, the August USDA report was fundamentally supportive for rice prices with lower new crop production and ending stocks.

Why then has the rice market turned lower? One reason may be the exit of “long” or buy-side speculators from the grain complex. Corn, soybeans and wheat did not get the bullish numbers from USDA that the trade anticipated and have sold off heavily.

Rice futures would benefit if corn and soybean futures could finally attract some buying interest. Weather forecasts will be closely watched this month. The updated U.S. Drought Monitor shows 15% of U.S. corn acres and 16% of soybean acres are in some degree of drought.

Traders are anxiously awaiting the Pro Farmer Crop Tour which will begin Monday (August 21) and run through the August 24 with final results to be released on Friday, August 25. Without question, the trade is very anxious to see if the tour confirms or denies USDA’s August yield estimates.

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