Rice Market: More Bullish Than Bearish

©Debra L Ferguson Stock Photography

In the domestic market, damage from Hurricane Laura is still being assessed. It is widely accepted that damage has occurred to the 2020 rice crop in most production areas. However, the size and scope of that damage has yet to be determined.

Cash prices have continued to be somewhat firm as a result in most areas. Quality and milling yields are still big question marks to be determined that will drive the pricing equation for the remainder of the year. Overall, prices in the long-grain states have been largely sideways over the past few weeks.

Given the focus on harvest and the lack of obvious direction in the cash market, flat prices are likely to continue until some disruption in the market occurs.

South America: Drier Weather, Fewer Acres?

Reports from South America suggest that the supply situation there is getting tighter. Buyers from the Mercosur trading area have already made overtures to purchase US rough rice at harvest to offset these deficiencies. Any sale of consequence to those destinations would boost the demand side of the balance sheet and help to firm up prices even further.

The South American rice complex grows more intriguing by the moment as producers brace for a drier growing season and prepare for fewer rice acres. Planting milo already seems to be captivating the interest of rice growers concerned about water shortages.

A perfect storm is brewing in Brazil as well, as they are coming off a year of reduced production, increased exports along with the devastating effects of COVID-19. A tight stock situation followed by a smaller crop from South America may very well result in a smaller presence in Central America and even Mexico, which bodes well for the US.

With export demand for US long-grain rice slow to develop at this point, the industry could greatly benefit from increased market share in those key Central American markets. We remind you that the Mercosur harvest is not until February-March.

Brazil Opens Way For Increased Imports

With regard to Brazil’s rice shortage, the Brazilian government made it formal with the announcement of a duty-free access of up to 400,000 metric tons of rice regardless of origin. Brazil’s Executive Secretary of the Foreign Trade Board, “CAMEX,” voted to provide duty-free access for up to 400,000 metric tons of paddy and milled rice from all origins, effective today through December 31, 2020.

The measure was officially published in Brazil’s Official Governmental Register. Two U.S. vessels have been confirmed and others are being negotiated. Also, reports of rice imports from Guyana and India were confirmed. With the Brazilian state of Santa Catarina beginning its harvest in December and a full harvest in Mercosur expected in January and beyond, the needs of the country should normalize by the end of the year.

Up until now, all rice imports from outside of the MERCOSUR bloc (Argentina, Brazil, Paraguay, and Uruguay), including the U.S., faced a 12% import duty on milled rice and a 10% duty on paddy rice. During this three-month period, U.S. exports will be more competitive without the import tariffs. However, they will still be subject to a slew of internal value-added and transportation-related taxes.

Potential U.S. exports to Brazil will continue to face competition from that country’s South American neighbors, as well as major Asian exporters, who will also benefit from the limited duty-free access. U.S. exports to Brazil over the last decade have averaged less than 1,000 MT annually.

Demand Offset Some Increase In Supplie

The September WASDE report called for lower beginning stocks, with increased production, imports, and total use. Imports for 2020/21 are raised 800,000 cwt to 36.8 million on expectations of continued strong demand for combined medium and short grain varieties. In the September Crop Production report, the USDA NASS raised the 2020/21 rice crop by 6.9 million cwt to 225 million on increased harvested area.

The average “all rice” yield is down 71 pounds per acre to 7,529 pounds. Long grain production is raised to 168.9 million and combined medium and short grain production is cut to 56 million. With the increased supplies, domestic and residual use and exports are each raised 2 million cwt, all long grain.

The “all rice” ending stocks are increased by 1.6 million cwt to 45.9 million and the season-average farm price is dropped for both classes of rice.

Increases in demand this month offset almost a third of the total supply increase. Domestic use was increased by 2 million to a record 111 million cwt. Exports were also increased by 2 million cwt. Total demand at 182 million cwt. would be the highest since 2010.

Projected 2020/21 ending stocks were increased to 32.8 million cwt, up 8.5 million from last month and the highest since 2010’s 35.6 million cwt. The 2020/21 season-average “all rice” farm price was lowered $0.30 to $11.30 per cwt (or $5.09 per bushel).

The sharp increase in new crop production and ending stocks turned November ‘20 futures $0.35 lower at midday Friday, September 11. The technical picture turned negative with trading slipping out of the up trending channel that has been in place since late July. Initial support for the November contract is being found near $12.10 or the 38% retracement of the monthlong July 28th to August 28th uptrend.

Efforts To Restart Iraqi Purchases

Over the past month, U.S. long-grain export quotes have remained at $625 per ton. As of the beginning of September, over a quarter of the crop has been harvested. Alhough prices have been slow to decline until more new crop becomes available.

In contrast, the Uruguay quotes have spiked to $575 per ton on tightening supplies in South America. Thai prices at $500 per ton are the highest among Asian suppliers, supported by reduced prospects for the upcoming crop and currency strength.

Vietnamese quotes have risen to $48 per ton as the market awaits the 10th month harvest. Pakistani quotes are still at $445 per ton, while Indian quotes have declined to $375 per ton. Among the major exporters, only Indian quotes are on par with levels a year ago, while others have risen significantly.

Iraq could prove to be a huge shot in the arm, especially when comparing the recent trade activity out of MERCOSUR. Iraqi tenders have once again surfaced in the rumor mill. However, details are opaque at best. It appears that there is some anticipation that the Iraqi Grain Board will announce a tender for US long-grain rice before long.

The Iraqi Prime Minister and a trade team are in Washington D.C. and among the list of issues to be discussed are purchases, financing of U.S. rice.

U.S. rice farmers are counting on a recent $450 million loan from the U.S. Export-Import bank to Iraq to restart the country’s rice imports. The Export-Import Bank of the United States (EXIM) Board of Directors unanimously voted (August 14) to notify the U.S. Congress, pursuant to the law, of its consideration of a potential transaction that would facilitate the authorization of $450 million of insurance coverage on letters of credit issued by the Trade Bank of Iraq (TBI) for the purchase of U.S. goods and services, such as agricultural commodities, including wheat and rice, and engineering services.

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Additionally, under this approval, EXIM is expected to authorize various transactions that will insure covered U.S. banks including J.P. Morgan in relation to TBI’s irrevocable letters of credit associated with the purchase of U.S. goods and services such as agricultural commodities, including wheat and rice from America’s great agricultural exporters, and engineering services.

Iraq has not purchased any rice yet this year, a stark contrast to 2019. Last year Iraq imported about $15.5 million worth from the U.S. from January through June, according to USDA data. And the U.S. could really use that business now because exports are down from last year.

Iraq has long been a big importer of U.S. rice, but the COVID-19 pandemic has thrown a wrench into the finances of a country that buys grain through government-run tenders. The steep decline in oil prices has hit Iraq particularly hard, says Peter Bachmann, vice president of international affairs for the USA Rice Federation, and it’s the oil revenues that enable the Iraqi Grain Board to import rice and wheat.

Food Aid, Chinese Floods

A bright spot for U.S. rice farmers this year has been food aid. The U.S., through its three main food aid programs, has bought and shipped a record amount of U.S. rice to needy people around the world.

Through July the U.S. government donated more than 100,000 metric tons of rice through its Food for Progress, Food for Peace and Food for Education programs. On top of that, the USDA tendered last month for 31,500 tons of rice to benefit West Africa with another similar tender expected soon.

Another gripping story in the world rice industry pertains to the Yangtze River in China where roughly 13 million acres of agricultural land have been flooded, most of which is believed to be engaged in the production of corn, beans, rice, and livestock. Currently, rice damage is believed to be downplayed by the Chinese government for both political and food security purposes.

Regardless, this behemoth of a rice market has seen stocks rise for more than 10 consecutive years, making the potential impact of these floods on the global rice market extremely difficult to predict.

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