It isn’t easy to be optimistic about the state of the world rice market in 2019. Large supplies, mediocre prices, abnormally wet conditions across much of the Rice Belt — all are adding to a sense of discouragement among growers.
Thus, when an analyst like Shawn Hackett, president and founder of Hackett Financial Advisors, says there’s at least a chance the markets could move higher, most farmers are willing to listen to what he has to say.
“It would not take much to cause a very significant rally in the grain markets,” said Hackett, who shared a University of Arkansas System Division of Agriculture Food and Agribusiness webinar with The Rice Trader’s Jeremy Zwinger on April 4. (Visit https://youtu.be/SZ_JR1OlsdM to watch the webinar.) “We need to keep an open mind this year.”
Hackett said weather patterns associated with the El Niño phenomenon currently in place in the Pacific Ocean could bring about a change in fortunes for the world’s rice producers — if not this year then at some point over the next three years.
“Weather is the great equalizer,” he said. “You can have all the supplies you want but weather can even the score in one year’s time. We have seen that happen over and over again. We think we are heading into a really challenging three-year period coming up.”
Different weather patterns
The El Niño phenomenon can result in different weather patterns in different parts of the world: Too little rain or drought can occur in Asia and Australia; too much rain in the U.S., for example. Hackett displayed a chart depicting annual amounts of rainfall received by India’s rice-growing area during the monsoon season.
“Every single monsoon that has been down 10 percent or more in rainfall has occurred in an El Niño year,” he noted. “That means India is on the table for a significant weather event. If weather becomes an issue in India you can bet rice prices will rise at least for a little while. Other Asian countries have similar trends.”
Another potential reason for “some excitement” in the Asian rice price outlook is the Indian Ocean Dipole that looks at water temperatures in the portions of the Indian Ocean on either side of the Indian Subcontinent.
“Typically, a positive reading means more rain; negative reading means less rain,” he said. “When you have an El Niño, which means usually dry, and you have the Indian Ocean Dipole negative to neutral, you have an even greater propensity for a drier monsoon season in India than would otherwise be the case.
“If this forecast plays out, it would say that India is again on the table for a weather scare and possibly a very poor crop.”
The last time Asia had an El Niño and an Indian Ocean Dipole flat to negative over the summer was 2002. India, northern China and Indonesia had dry, adverse weather, and Indian rice production was down about 20 percent.
“I'm not saying we will have a 20 percent knockdown in Indian rice production, but it is possible, says Hackett. “The setup is there for something serious to happen in India; not to mention other Asian countries.”
Then there’s the United States, which is experiencing some of the wettest, most saturated soils in 125 years. “We went back, and we have never seen such a wide swath of the U.S. enter the spring planting season with soil moisture saturation levels in the 99th percentile. It is unprecedented.”
Farmers can plant their crops in a shorter window than in years past, Hackett notes. But growers should be watching weather patterns across the country for any opportunities to price part of their production on weather rallies.
This year may be different
“We appreciate the magnificence of new planting equipment, but we are keeping an open mind that this year may be a different story. When you have saturated soils like this, and you get any kind of rainfall, there is nowhere for it to go but to cause flooding.”
Hackett says some of the weather maps going to the end of April are showing a large swath of the Midwest with well above average rainfall at a time when flooding is already occurring. That’s the kind of event that gets the investment community excited about buying into depressed markets.
“Right now we have some of the largest short positions in a very long time,” he said. “This kind of an anomaly is not something to take lightly. It is something to keep your finger on the beat of what is happening.”
Hackett and Zwinger each talked about another anomaly — the variation in solar radiation hitting the earth that seems to occur in cyclical patterns called Grand Solar minimums. World agricultural production has increased and declined depending on the position of the sun in relation to the earth.
“The sun actually rotates around this center of mass called the Barycenter, which means it wobbles,” said Hackett. “It is not a steady rotation. In this chart, 2019 is indicated by the top arrow. That’s where it is now. The bottom circle is where it will be in 2037. We will completely change the center of mass of our solar system during the next 20 years.”
When this has happened in the past, droughts have occurred and farmers have harvested smaller crops. The Chinese have maintained records that show how the weather cycle has coincided with changes in its ruling dynasties.
Hackett cited the Gleissberg Cycle, an 88-year one-in-100-year drought cycle based on periods where the sun expands or contracts and causes an unusual drought.
“1845 was the one-in-100-year drought in that period, and it occurred again in 1935, which was the Dustbowl era,” he noted. “And we move 88 to 90 years ahead, and it says the next one-in-100-year drought for the Midwest will occur between 2023 to 2025. This has been going on for thousands of years.”
Will it happen again? “I cannot say 100 percent for sure, but history says it is likely to occur again, and we should be on the lookout for one of those rare instances where we get a drought of the magnitude which would completely change the oversupply in the grain markets.”