Rice Market Update: High Ocean Freight Rates Complicate the Marketplace

Photo courtesy of US Rice Producers Association

At the risk of sounding repetitive, the cash market throughout the delta remains on ice. There have been very few trades reported over the past week, and buyers are generally lowering their offers as both paddy and milled rice demand are in the doldrums.

US long-grain exports lag the 2019/20 marketing year by more than 12%, and there is little sign of improvement on the horizon. The lack of demand in the Middle East and the Caribbean will be driving factors when it comes to scaling back rice acres this spring.

Of course, the robust demand for feed grain commodities stemming from China’s growing needs will only serve to exacerbate that prospect, swaying famers more towards beans and corn.

Despite a lag in U.S. long-grain exports, the South Louisiana Rail Facility had a record year with 165,000+ tons of paddy rice exported out of the Port of Lake Charles and the Lacassine Rail facility from the 2020 harvest, involving some 100 producers from SW Louisiana and East Texas. This effort cleaned out the farmers’ bins before new crop planting got underway.

Asia long-grain prices traded sideways as Thai 100% B was recorded at about $525 per metric ton. Although export prices out of Asia have been largely unchanged for the past several months, they are maintaining their 15% premium to where they were trading 6 months ago.

Freight rates and container shortages continue to be a significant pinch-point for dry bulk exports worldwide. The yearlong frenzy to secure panamax and smaller vessels to ship coal and grain has left many rice traders uncovered, and in some cases, has earned a premium for those that had bookings. Normally, the larger the vessel the more expensive it is to operate and secure, however, this year that has not been the case.

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Smaller and medium-sized vessels have been trading at premiums to even capsize vessels due to their versatility in their loading and unloading capabilities. As demand for grain unwinds most analysts predict the freight crunch will subside, but unfortunately, it will take some time before the slower demand works its way into freight prices.

Therefore, while FOB prices for rice may begin to correct as the US dollar strengthens and harvests continue in Asia, delivered prices are likely to remain at elevated levels in the nearby due in part to freight constraints.

The futures market was flat to slightly up this week which is an indicator of weak interest in the nearby. Despite the average daily volume improving by 327 contracts against last week, open interest retreated to 9,059.

Full report.

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