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Bigger supplies pressuring medium-grain prices

Increases in acreage and production this season have significantly bumped supplies of U.S. medium-grain rice and is weighing on prices of the class of rice, despite good export numbers, according to Nathan Childs, senior rice market analyst, Economic Research Service, USDA.

Childs, speaking at the USA Rice Outlook Conference, in New Orleans, estimates that this year’s U.S. rice crop could end up being 7 percent larger than last year’s crop, most driven by area expansion, which is up 4 percent.

Yield for 2009 is projected 3 percent higher than last year, however, the full effects of late plantings and the heavy rainfall in October in the Delta won’t be known completely until the January crop production report, Childs said.

All of the increase in production over last year’s crop is in medium-grain rice, according to Childs. “Long grain production is actually projected down a little bit. Medium-grain area expanded both in California and the South, with Southern medium grain production more than doubling. If it weren’t for weather problems, the Southern medium grain acreage would probably have been even higher.”

Louisiana and Arkansas accounted for most of the medium-grain increase over 2008. Arkansas planted over 200,000 acres in medium-grain rice in 2009. On the downside, this has led to big supplies and ending stocks for medium-grain rice.

All-rice ending stocks are projected at 43 million hundredweight, the largest since 1986-87, “which was a year when we had extraordinarily low prices, probably around $4 to $5 a hundredweight,” Childs said. “The buildup is almost all in medium- and short-grain, which has about a 30 percent stocks-to-use ratio.”

Childs also stressed that “it’s very difficult to expand global trade of short- and medium-grain rice. Once Japan, Taiwan and Korea make their WTO commitments, they won’t purchase any more rice regardless of price. So it’s a small market.”

Childs says domestic rice consumption is expected to be a record in 2009-2010, “mostly driven by larger population. Per capita consumption is mostly flat, maybe rising a third of a pound. Medium-and short-grain rice will account for all of the expansion in consumption.”

U.S. rice exports are projected to increase by about 4 percent over last year, Childs said. December projections include a million hundredweight increase in exports from the previous month in medium- and short-grain rice.

Childs says medium-grain exports are a near-record due largely to a drought in Australia and export restrictions in Egypt. “So two major competitors are either out of the market or they are shipping very little rice. The United States is the only supplier of medium-grain rice into the global market. The other suppliers, like Europe, are way too high-cost.”

Childs says Egyptian rice producers “are facing severe water constraints, and its government is restricting exports to encourage more efficient use of water. Its long-term potential is unknown.”

Childs said the pace of long-grain exports has been lagging as of late, but added that the potential for sales of 120,000 tons of rice to Iraq could go a long way toward meeting export goals.

Increased rice sales are also expected into Mexico and Central America, the largest and most stable of U.S. export markets. Sales have also been picked up in Panama, a non-traditional buyer of U.S. rice. Turkey has also come into the market for U.S. rice.

U.S. imports continue to grow, but are not projected to be a record in 2009-2010. All the growth will in aromatic, long-grain rice, with Thailand supplying about 70 percent of U.S. imports. “India and Pakistan supply mostly Basmati rice. It’s very expensive rice, well over $1,000 a ton, probably three times U.S. prices. Long-term, we see imports increasing at a faster pace than the domestic market.”

One factor that has slowed domestic use in recent years is a very sharp drop in brewer’s use, which has declined by more than a third, according to Childs. “It’s gone from about 16 million to 17 million hundredweight on a rough basis, to under 10 million hundredweight. So far this year, through October, it’s a below a year earlier by about 10 percent.”

USDA data indicates big declines in 2009-2010 in short- and medium-grain rice prices, “down from $25 a hundredweight to under $18 a hundredweight. It doesn’t appear to be a steady decline. It’s mainly driven by big U.S. supplies. Global demand is not declining, but it’s hard for the medium- and short-grain market to expand a whole lot, with such a small number of buyers.”

Long-grain prices are expected to increase, “based on stronger world prices,” Childs said. “There are weather problems in India and the Philippines, and Thailand is holding 4 million to 5 million tons of rough rice off the market to support prices. It’s very unlikely that Thailand could carry over $600 ton without holding the rice. This policy started in the late summer of 2008, when prices started to decline. Thailand bought rice, held it, and continued that program in subsequent crops.”

For U.S. rice production in 2010-2011, Childs projects higher production costs and a slight area reduction, due primarily to large medium-grain supplies. “We see a higher yield trend, in the absence of weather problems. We see a large carryin, increasing imports and little change in production. We see larger total supplies, a 1 percent increase in consumption, a small export expansion, mostly in the traditional markets, another buildup in stocks and weaker U.S. and global prices.”

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