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What to do with bigger rice crop, new farm bill programs?

What to do with bigger rice crop, new farm bill programs?

Mill CEO explains outlook for U.S. long-grain rice. Iraq a key to deal with larger crop? How will new PLC program impact rice producers next year?

There are some key market fundamentals likely to impact rice prices in the new crop year.

“Every year, the first fundamental to look at is the size of the crop,” said Keith Glover, president and CEO of Producers Rice Mill, during the 2014 Arkansas Rice Expo on Aug.1. “We all know we’ll experience a bigger (rice) crop than in 2013. The one thing to notice when looking at the USDA’s latest acreage data is that the increase will all happen right here in the Mid-South. In Arkansas, we’re up 46 percent in rice acres. Our neighbors in Mississippi and Missouri will be up 36 percent. The other three rice-producing states will actually be down acreage-wise.”

Looking at Arkansas’ rice acres specifically, “this will be the first time in our history that the state will represent over 50 percent of the nation’s overall rice acreage.”

The USDA is currently estimating that the 2014 U.S. rice crop will come in at 169 million hundredweights. “That will make it the third largest crop in the last decade.

“Assuming the USDA is close, compared to last year we’ll have an additional 37 million hundredweights of long-grain production. USDA is also projecting that a year from now ending stocks will likely be about 9.5 million hundredweights more than they are now. That makes sense because we’re ending a marketing year where our carryout stocks are likely to be the lowest we’ve seen in about 10 years. So, we’ll probably see a rebound in the size of the carryover.”

Do the math and Glover said the “most  important number” is the 28 million hundredweights left to deal with. “We as an industry will have to market that additional long-grain rice.”

Where will that long-grain rice go?

“I’d argue the most likely candidates will be the export markets. We’re very happy with our strong domestic demand. However, truthfully, the demand is very consistent and stable. There isn’t much fluctuation from one year to the next.”

Typically, when there is a surge in U.S. rice production, “the one place to continuously send the rice is the export market.”

Iraq a key

Finding a home for the additional 28 million hundredweights will be a challenge, said Glover. “To give you some kind of idea … we’re going to have to see a 44 percent increase in U.S. long-grain exports in 2014/15.”

Iraq, Glover believes, could be key in moving the rice. “The good news is that after a three-year absence, Iraq came in and began buying U.S. rice in 2013/14. Another bit of good news: Iraq annually imports 1.4 billion metric tons of rice. So Iraq alone could handle the 28 million hundredweights.”

The rice most recently shipped to Iraq was required to be bagged in the United States. This, said Glover, means upper Mid-South mills are at “a freight disadvantage. The Louisiana mills, the Gulf Coast mills, are the ones that realized those sales (to Iraq). We have a $50 to $55 per metric ton freight disadvantage.”

Prior to 2010, Iraqis would take unbagged rice from the Mid-South. “We would ship it, in bulk, all the way to Iraq. Over there, they’d pack it at the port and distribute it. Why they’ve changed their preferences, I don’t know. But I assure you we’re trying to get them to go back and take our rice like they did in 2010.”

To sell the larger crop, the price for U.S. rice must be competitive. How will that play into the new farm bill programs? Glover worked through an example.

“The USDA’s most recent projection for long-grain cash farm prices in the upcoming year ranges from $12 to $13 per hundredweight. If they’re correct, under the new (Price Loss Coverage, PLC) farm bill program, you’ll receive a payment.

“Work from the mid-point of (the USDA projection) of $12.50. Under the PLC program for rice, there is a ‘reference price’ of $14 per hundredweight. We used to call that the ‘target price.’ Compare that to the average farm price ($12.50) and that means a difference of $1.50 per hundredweight (or $0.675 per bushel). Under the old farm bill, that was known as the ‘deficiency payment.’”

Unfortunately, said Glover, the payment has been “sucked up into the Budget Deficit Reduction Act and there will be a sequestration of 7.2 percent taken out of that amount.” The sequestration would mean 11 cents less per hundredweight.

Bottom line, said Glover, is under such a scenario the PLC payment would likely be $1.39 per hundredweight.

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