Milo Hamilton sees two scenarios for rice producers this spring. Prices could continue to be low, discouraging as that seems, or they might turn up and give growers a chance to show off their marketing ability.

Hamilton, the president and founder of FirstGrain and senior editor of the FirstGrain Rice Market Strategist, says the latter could also provide growers with an opportunity to show their bankers they know what they’re doing, making them more, well, bankable.

Those were some of his comments during presentations for a University of Arkansas System Division of Agriculture Food and Agribusiness Webinar and for a Special Rice Marketing Educational Seminar at the Mid-South Farm and Gin Show in Memphis, Tenn. (To watch the webinar, go to https://www.youtube.com/watch?v=OvJFZssRBvw.)

“There’s two scenarios for this spring — the prices are low or the prices are high,” he said at the Gin Show. “You don’t do the same thing with the mechanisms and the programs if they’re high or if they’re low. Each market is different.”

Hamilton, who bought millions of bushels of rice for Uncle Ben’s for 18 years before starting FirstGrain, said he looks at the world market and the U.S. market as extremes. “When it’s high that’s an extreme; when it’s low that’s an extreme; and the market wants to come back to even.

“When the market has too high prices, it solves it with too high prices. When the market is too low, it solves it with lower prices. If you have low prices, you have to look at the market one way, and if you have high prices you have to look at it in another. But it’s always going to come back to a mean. You want to manage around the mean.”

In between, such as at price levels of $11 to $12 per hundredweight, producers only have one option. “When prices are lower — say at $9 per hundredweight — you can actually do a little more.”

MARKETING TOOLBOX

Hamilton said a farmer’s marketing toolbox should include three or four options, depending on the circumstance. “All my farmers use these tools to make the maximum amount of money they can make each year, which can be important in a down market where every dime makes a difference. You can’t forecast the market, but you can manage the market.”

He no longer buys or sells rice, which, he believes helps make growers more comfortable with following his marketing advice. “When I was working for Uncle Ben’s I bought and sold the equivalent of 4,000 and 5,000 futures contracts every year, so I know what volatility is all about,” he said. “But I no longer trade or broker rice.”

One of those keys to marketing is realizing that the rice futures market works. “It’s so much better than it was in 2012,” he said. “The commercial mills, cooperatives and exporters who take my service, they all agree the rice futures market is better, and I’ll show you why that’s the case.”

Hamilton agrees the rice prices in Asia are nothing to write home about. “People in Asia are saying the price is very low, and it’s true,” he noted. “It’s on a down cycle that’s been lasting about 10 months. In the longer stream of things, I think we’re seeing a rounded bottom in rice in the Asian market and in wheat.”

He displayed a chart tracing the movement of rice prices in Asia followed by a slide showing the Americas’ price, an average of what rice is selling for in the U.S. and in the South American exporting countries.

“The markets are coming together,” he said. “At about $500 per ton farmers in the Western Hemisphere start losing markets. In Asia, they can sell so much cheaper because they are so highly subsidized. A recent study shows that China has about a 20 to 30 percent revenue boost to the farmer vs. the more developed country, and it’s really subsidized in India.”

Water is another area of divergence in the rice world. Farmers in China use two-and-a-half times as much water to grow rice as farmers in the U.S. “We’re no poster child for water use, but our scientists are trying to find systems such as row rice that will reduce our need for water,” he noted. “The real interesting thing is in India where water use is skyrocketing. They’re exporting more rice and using more water, and something has to change.”

RICE OFTEN FOLLOWS WHEAT

He learned during his years with Uncle Ben’s that rice prices often follow wheat, which makes it an indicator of future market activity in rice. Hamilton displayed a wheat price chart to show how moves in the wheat market have presaged movements in rice.

“These little vertical lines were always my indicator of when I should start expecting higher prices, and this was not from rice but from wheat,” he said. “When the wheat market made a significant turn like here, here and here, it was an indicator, and I think, in November and December, the wheat market turned.”

If rice prices go up this spring to a level that farmers can earn a profit, you need to sell futures on a part of your crop,” he said. “You don’t have to hedge the whole crop and fund the whole thing. You can make money from crop insurance if the indemnity trigger is high enough that you can make money.

“In a high market when November is trading at $13, take out some coverage and try to keep that premium down by the way you organize your farm. Crop insurance is a subsidized put. Chicago doesn't give you anything subsidized, but the government does.”

The rest of a farmer’s rice may be sold at a lower price. Futures and Price Loss Coverage payments will help offset those lower returns.

If the prices go up? To $18 or $25 per hundredweight? “Well, you get no crop insurance payment, but the good news is on the 70 percent to 80 percent you did not hedge with futures, you get a higher price,” he said.

“This is not a greed thing. This is a turn the wheels of business and keep going every year so you can go to your banker, and he understands what you’re doing and it makes sense to him and to you.”