Plenty of madness this week as more stories circulate of panic buying and export bans. The last thing the world needs right now is unfounded fear and worry about global food supplies.
As a public service, we remind everyone that global rice stocks have increased each year since 2007 and currently sit at a record high of 182 million metric tons (USDA).
Unfortunately, supplies are only abundant if they are available. In recent days Vietnam temporarily suspended new export sales to evaluate their supply situation. India, the largest rice exporter, is under a 21-day lockdown.
This is an attempt to slow the spread of COVID-19. In a country of 1.3 billion people, an enormous challenge lies ahead. It appears likely the lockdown in India (and potentially other countries) will slow export activity for another month at least. Old Crop (2019) rice prices are finding solid support on global supply-chain fears.
At this writing, the May contract is up 40 cents at $14.65. That’s the highest trade for a nearby contract since July 2014. The strength in old crop prices will likely continue until the world can “flatten the curve” on COVID-19.
The potential for more old crop export demand and a further drawdown in ending stocks is also providing a lift to new crop prices. The September contract is back at $12.20 this week The next USDA Supply/Demand report is Thursday April 9th.
It will be of particular interest to see if USDA adjusts its old crop longgrain export projection—which is currently 71 million cwt. Data from USDA’s weekly Export Sales continue to point to a total closer to 75 million cwt.
Exports of that magnitude would draw ending stocks down to 2003 levels, which were 10.3 million. Extremely bullish!
Yet Another Nice Surprise
Another bullish driver for new crop prices is the USDA Prospective Plantings report, released earlier this week. It wasn’t a surprise that every major long-grain producing state was projected to increase acreage this year. This surprise came in the fact the acreage increase wasn’t considerably higher.
Rice News on AgFax
Recall in February, USDA’s Ag Outlook Forum projections pointed to 2.35 million acres of long-grain this year—a 32% increase! What happened? The March intentions indicated only an 18% increase. However, Arkansas’ long-grain acres were projected to increase 25% or 240,000 acres.
The longer one ponders the March 31 Prospective Plantings, more and more questions come to mind. For instance, go back in time one year. In March of 2019, Arkansas’ intended longgrain acres were 1.2 million.
The U.S. long-grain intentions were 2.151 million. Given the current supply situation and rice’s price relationship to all the major grains and cotton, why would growers intend to plant less rice in 2020?
A host of other questions come to mind. In 2019, Arkansas alone had over 1 million acres of prevented planting. Just over half of that was for rice.
The Prospective Plantings pointed to an increase of 240,000 rice acres and 250,000 soybeans acres. Corn was up 30,000 and cotton was down 30,000 acres. Net change on the major crops was 490,000 acres.
Looking At The Last 12 Months
To make the discussion even more interesting, look at how commodity prices have changed over the past year. Using crop insurance as a benchmark, the long-grain projected price for 2020 is $12.10/cwt. compared to $10.80 last year. The soybean price guarantee is 24 cents less than a year ago at $9.31. Corn and cotton price guarantees are lower this year as well.
Of this group, rice is the only commodity to see price improvement.
Input costs have not worked against rice economics. For example:
- Diesel prices have fallen $1 per gallon this quarter.
- Fertilizer prices are softer compared to last year with many growers reporting urea bookings under $300 per ton.
- Potash has been on a consistent decline over the past year.
The comparative returns of rice to soybeans (which currently trade at $8.60) also points to a stronger increase in rice acres. As mentioned earlier this week here 2020 planned rice acreage increases year-over-year, but falls short of analysts’ expectations — weather permitting, expect to see a higher acreage total in USDA’s June Acreage report.
An Opportunity Ahead?
In the meantime, the market will have to accept the Prospective Plantings as an accurate reflection of grower’s intentions. Remember, the March intentions will be used as the foundation for the first new crop (2020) balance sheet released in May.
Compared to the acreage expectation USDA used in February’s Ag Outlook Forum, the March intended acres represent a “game-changer” for new crop longgrain ending stocks.
By plugging in the planted acreage from the March Intentions, production is lowered by 18 million cwt. to 156 million! By itself, this is very bullish. Generally, lower production leads to lower demand and that will be a key focal point in USDA’s first new-crop balance sheet due out May 12.
Without any changes to the projected 183 million cwt in demand, ending stocks would fall to a very tight 12.7 million.
Bottom line, the production outlook put forth here is very real and one that the market will have to stare at until July when the June Acreage report is used. Demand is the big variable going forward while the world wrestles with COVID-19. The U.S. rice market is also focused on Midsouth weather. Right now, that alone leans supportive to rice prices.
Another wet week is ahead. Keep in mind, too, that the Prospective Plantings may be providing a second chance and an opportunity to catch up on new crop sales. Watch for a retest of $12.29 in the September contract. View it as an opportunity. With soybean prices in the $8s, rice will be the preferred crop if it takes till June to get it planted.