Rice Market: Little Downside Price Risk

After the significant market movements of the past week, the rice market action has subsided as the information continues to digest and the new balance is sought after. The export sales report was delayed for the week until Friday due to the Federal Martin Luther King holiday this past Monday.

It is likely that the volumes in both sales and vessel loadings will increase over last week’s report given the buying activity seen in the past 10 days. It is difficult to indicate an actual number, but the direction is pretty clear.

USDA raised its world market price estimate this week by a sizeable amount over the previous estimate. This is likely due to the rapid appreciation in Asian origin rice as well as the fundamental forces impacting the U.S. rice market.

Benchmark Asian pricing has also jumped since the last report, in some cases in the double digits. The price changes are reflexive of bullish regional fundamentals and as the uptrend has been established, it is probable that this will continue into the weeks ahead.

Domestically, not much has changed since last week’s report. The market is still trying to digest the trading and assimilate the volume and pricing differentials that have been observed in the past two weeks.

As the market has taken a very large “gulp” of the available inventory, pricing will probably stabilize at current levels for a time until the trade can equalize the supply and demand equation. It can be noted that there is very little downside price risk for the remainder of the 2019 crop year.

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The futures market has seen positive appreciation as well. The open contracts on the board posted gains ranging from 1.03% – 2.13% on higher open interest and lower average daily volume.

Growers are beginning to look to new crop and planting intentions for 2020 and the market is at this point suggesting that rice may be more lucrative than in the past. The next few weeks will be telling as the planting decisions are made and the new crop becomes more tangible.

One other point to remain aware of is the impact of the Chinese coronavirus outbreak that has spread internationally. The containment of this virus has already impacted the transportation and trade between China and its neighbors and continued spread of the illness could impact U.S. trading partners as well.

A reduction in exports would definitely hit the brakes on the market rally in the near term and may cool things off faster than growers would like to see for new crop potential.

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