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No acreage response to high rice prices?

What happens when there is not an acreage response to high prices? Well, in today’s rice market, it could likely mean another year or two of high prices.

According to Milo Hamilton, Firstgrain Inc., Austin, Texas, “the way it normally works is that the rice price goes up, farmers get bullish and produce a lot of rice. But where is the acreage response going to be when wheat and soybeans prices are fairly firm, and the price of urea is going up?”

“If you compare this market to the last $11 market in 2002, we had a huge increase in rice production the next year. That was because our rice price got out of line with the rest of the world.

“With 2008 futures prices for rice at over $13 per hundredweight, “who would think we wouldn’t see a (subsequent) increase in rice acres. But if things don’t change, we could actually lose acres to wheat and soybeans. A lot can change if you get to $60 oil and $7 soybeans, but at this point in time, it’s difficult to say you’re going to get a production response.”

As a result, rice prices could remain high for a couple of years, an observation also supported by USDA economist Nathan Childs. “I’d be hard pressed to come up with a factor that would likely reduce the U.S. price going into 2008-09.”

Hamilton, interviewed at the USA Rice Outlook Conference in Orlando, said, “Farmers at the conference were there to learn two things – the status of the farm program, which is going to affect 2009 acreage, and maybe 2008 acreage if there is any kind of gelling of the farm bill before the crop is planted. They’re also here to learn about the market.”

Bobby Coats, an economist with the University of Arkansas Cooperative Extension Service said other economic factors could support rice as well. He noted that the Federal Reserve – concerned about U.S. economic growth – might lower the interest rates to stimulate growth. “That has the potential to be inflationary. And an inflationary setting in this global economic setting then becomes very bullish for commodities.”

Coats agrees that wheat prices are one key to rice area next year. “If wheat prices move higher, then you start looking at soybean and corn prices to have significant upside potential. I expect stronger corn and soybean prices going over the next several months until we see a prospective plantings report. Under that scenario, we could see rice prices move on up, following the lead of corn, wheat, sorghum and soybeans.”

Under a strong price scenario for rice, “we could have as many or more acres of rice planted in Arkansas next year. But there is also farm bill uncertainty, extremely high production costs and very strong soybean and corn prices. With weakness in rice, our rice acreage would be impacted because our production costs are out the roof.

“The bottom line is that 2008 has the potential to be a very good pricing year for rice. But we have a very complex global economy, so if we do get some significant weakness in that economy, it could pull equity and commodity markets down. But right now, it looks like we’ve gone through some corrections in both the equity and commodity markets, so in a few months we could see some relative price strength.

“At the end of the day, I think we will two solid years of global growth which lays a nice foundation for strong demand for commodities. I expect most of our food and fiber commodities to top from now over the next 12 months.”


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