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Is there a profitable future for U.S. rice prices?

In looking ahead to future rice prices, there are six questions to answer.

Milo Hamilton, President and Senior Economist

February 12, 2020

5 Min Read
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In looking ahead to future rice prices, there are six questions I try to answer.

1. Will President Trump reshape global rice trade?

Back in 1994, Japan began importing U.S. rice from California, not because they needed the rice but because they wanted to ensure access to U.S. consumer demand for their automotive exports.

Could China do a version of this and buy what is specified for rice in Phase I to ensure access to the U.S. consumer market? It they do, it will firm up the U.S. rice price, depending on where and what they buy. Unlike Japan, China could use U.S. rice, particularly long grain, for reasons noted below.

2. Will world rice production decline because it is an unprofitable crop to grow?

Rice prices have been declining until recently and corn yields are gaining on rice yields because of the ban on GMO rice and the preference towards Western-style diets. Could this trend cut rice production?

3. Will rising incomes reshape rice consumption in Asia towards higher margin rice preparations and perhaps better returns to rice growers?

It is estimated that by 2050, 50% to 60% of the world’s GDP will come from India and China, up from 30% currently. This could be a huge increase in net wealth in Asia and preferences for more expensive rice-based food products.

Related:Why do you get the rice price forecast wrong?

4. Will China mine less metals or grow less rice where rice is grown now and clean up the soils which have become polluted by cadmium, arsenic and related contaminants? Hunan province, a big rice producer, suffers from soil contaminants. Rice is particularly a problem because unlike any other row crop, rice uses a lot of water and grows in water.

China grows crops where it mines metals and produces industrial products. China has limited arable land (less than 25% of total land mass). Could China import more long grain to replace local rice suffering from soil toxicity? It could cost China trillions of dollars to clean up its soils. China has 65% of the world’s rice stocks; but no one knows how much of that rice has quality problems.

5. Could climate upset the growing weather for rice?

China is coming to terms with its shortage of water and showing good improvement since 2002 while water problems in parts of India and Thailand have gotten worse. What is harder to manage is climate change, such as colder or wetter weather. Cold and wet growing conditions can be as much or more of a threat to rice production as drought. Again, in 1993 Japan’s rice crop failed for a lack of chlorophyll. It had unusually cold weather and overcast days for the first time since 1946.

Rice is an irrigated crop and uses nearly 70% of China’s annual water for irrigation. Rice is also fed directly to humans, unlike corn or soybeans.

6. Will India have to cut its rice exports because its water supplies are declining, particularly in the northwest part of their agriculture area?

About 50% of India’s land mass is arable, the highest percentage of any large country on the planet. That is the very good news. Also 40% of its population is involved in agriculture versus just a 1 percent or 2 percent of the U.S. population.

India has been a major participant in every agricultural commodity boom since the discovery of the New World in the 1500s. First there was the spice trade, then the sugar trade, then the cotton trade and more recently since 2005, the global rice business. But can India keep up its agricultural export pace as its aquifers continue to be stressed? When weather curbs India’s rice output, its rice exports suffer, and world prices rise as occurred in 2008.

Both Thailand and India suffer from chronic water shortages in the north of India and in the south of Thailand. These water problems have worsened from 2002 to 2016. Together these two countries provide about half the world rice exports. Unlike China, whose stocks continue to swell and production rise, India is an unstable supplier over time to the world trade in rice. Thailand this year, due to drought, will export about 30% less than normal, for example.

If the answer is yes

If the answer to any of the 6 questions above is a decided “yes,” then world rice prices could rise substantially. In the last two months an 11-year price downtrend was broken.

I watch such things. Every major, multi-year, downtrend break since 1987 has resulted in a rise in the rice price of 30% to 300% over the ensuing months.

I have no takers among my rice friends on the idea that this 11-year downtrend line break is price-significant; but then this is not my first rodeo. As a buyer or rice market advisor, I bought those multi-year breakouts in 1987 and 1993 and turned friendly on the rice price in 2003 as a rice advisor and did not much change my thinking until 2008.

Most big bull markets in rice start in Asia, not the Americas; but 2003 was an exception to this rule. South America was short of rice and the price went higher into April.

My work suggests that into 2021, the Americas will experience the lowest level of net rice trade in 30 years, even with a substantial increase in U.S. rice acres in 2020. In addition, stocks of rice outside of China relative to world rice trade is at the lowest level since 1960. This is the key statistic I watch more than stocks/use inside countries.

We will know more about this current uptrend by the end of February. For the record, I have been bullish on the rice price since April 2019. Just look at a price chart.

In 2003, the price did not top seasonally until April.

I will be speaking in Memphis on Saturday, Feb. 29, at the Mid-South Farm & Gin Show 2020 at the Memphis Convention Center and then I will go over the evolving rice situation and these six questions in more detail.

My rice talk begins at 1:30 pm. I hope to see you all then. I will be hanging around the Farm and Gin Show on Friday and Saturday at my booth because I learn so much about cotton and new ag technology at these shows. Like rice, cotton can only grow well in southern latitudes, unlike wheat, corn oats or soybeans.

Source: Milo Hamilton, who is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.

About the Author(s)

Milo Hamilton

President and Senior Economist, Firstgrain

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