The February WASDE report was bearish for rice. However, one positive takeaway from the report is that domestic consumption was raised, albeit by 2 M cwt. With steady consumption driven by larger supplies and lower prices, increased usage will serve to reduce ending stocks.
The bad news is that a 2 M cwt increase in usage is minor compared to ballooning carryout levels.
Rice exports (long grain) are the key area of the balance sheet for 2018/19 that must see an increase in order to alleviate supplies and possibly rally prices. Any news of a new Iraqi rice tender would certainly create optimism in the rice export market. The U.S. and Mercosur desperately need this business. However, in the absence of such welcomed news, the not-so-welcome news is the instability in Haiti and Venezuela.
The degree that this instability affects the rice market is hard to measure at this point, but both countries are, and traditionally have been, large purchasers of U.S. rice.
Planting – That’s The Focus Now
Attention now shifts to plantings. U.S./Chinese trade negotiations are progressing, but no resolution has not been reached which would give markets a go-ahead signal to plant more soybeans. Weather and field conditions are at the forefront of planting and acreage decisions in the Mississippi River Delta region.
Wet weather has delayed field preparations and those delays could influence whether some of those acres ends up being planted to soybeans.
California is receiving rain (and snow) at 129% of the normal amount. The speed of the snow melt will be an important factor in determining if California sees a harvest reduction from too much water.
March futures sagged on light demand and a negative USDA report. Any mention of rice in U.S./Chinese trade negotiations would certainly be supportive, even if only part of a “goodwill gesture.”
The short-term trend is down, but ranges for soybeans futures contracts remain broad, In the May contract, that range is $10.32 to $11.00 per cwt. A move above $11.00 per cwt in the March contract would be seen as bullish.
Asian Market – Bumpy Ride
The Asian rice market is experiencing a shake-up in exporter market shares as each supplier vies for limited business. Indian rice exports are set to rebound in 2019 as the country maintains its role as the region’s dominant supplier. The government sharply increased the Minimum Support Price this year, supporting additional acreage and resulting in a relatively large crop.
This domestic price support initially spurred higher export prices, but depreciation of the Indian rupee and recent implementation of an export subsidy have helped to offset these forces. Government-held rice stocks are well above the desired buffer stock level, ensuring ample supplies. India’s chief competitor in the rice market, Pakistan, is forecast to have marginal declines year to year in exportable supplies.
Thai exports are set to contract more substantially. Carry-in stocks held primarily by the private sector, as government held stocks are virtually nil, are the lowest they have been in a decade. Over the past couple of months, a strong baht has kept Thai prices well above other Asian exporters.
Thailand is set to engage in intense competition with other Southeast Asian suppliers but relatively uncompetitive prices put it at a distinct disadvantage.
Vietnam is expected to make some market gains in the coming year. The country is well poised to continue to supply the Philippines, a more active buyer in recent months, and where pending legislation would likely keep imports at robust levels.
Likewise, Vietnam will benefit from Burma and Cambodia losing their duty-free advantage in the European market once afforded them by the Everything but Arms agreement. In January 2019, the European Union imposed significant import tariffs for these two suppliers, which, when combined, have grown to account for nearly one-third of EU imports. This change will make Vietnamese rice relatively more competitive in the European market while accelerating Burmese and Cambodian efforts to diversify into other markets.
China Slips Into Its Exporter Pants
The most prominent shifting dynamic in 2019 is expected to be China. While it has dominated global imports for the past 8 years, Chinese demand for foreign rice appears to be waning along with stricter controls being implemented at the border.
Rice News on AgFax
Meanwhile, China is reemerging as a significant exporter, shipping volumes not seen in the past 15 years. Core suppliers to the Chinese market are beginning to diversify away to other markets, only to see Chinese rice competing abroad in several markets at even lower prices.
Export quotes from the Western Hemisphere dipped slightly over the past month, with U.S. quotes at $530/ton converging closer to Uruguayan quotes at $520/ton. Western Hemisphere quotes continue to remain well above Asian suppliers. Thai prices remain elevated, as a result of a strengthening baht.
In contrast, Vietnamese quotes sank to $350/ton, drifting lower on weakened demand from China. Pakistani quotes were lowered further to $355/ton on new crop availability, whereas Indian quotes remained relatively steady at $370/ton.
Paraguay, Uruguay, and Argentina are getting ready to harvest rice and are aggressively seeking auxiliary markets such as Iraq, Iran, West Africa, and Latin America in order to augment sales to their core markets (Peru, Brazil, and the EU).
It remains to be seen whether or not Mercosur will be a vendor of paddy rice this year. Iraqi sales and Brazilian demand are at the forefront of this.
In the Mediterranean region, Egypt booked 90,000 tons of Chinese short grain rice plus another 25,000 tons of Vietnamese medium grain on its January 27th tender. It is believed that the Egyptian government buying agency will continue to rapidly tender as their needs are large. Rumors are that a vessel carrying rough rice to Turkey is waiting to be loaded in San Francisco Bay.