Farm Progress

Could wheat prices lead rice futures out of their doldrums?

Forrest Laws

July 24, 2018

5 Min Read

As farmers know too well, commodities have been going down in price and causing “misery for producers around the world,” according to Firstgrain’s Milo Hamilton.

But Hamilton, who has been buying, selling and analyzing rice price movements for all of his career, says there’s a chance that situation could change, depending on how wheat futures react in the next few months.

“Rice is not independent of wheat,” said Hamilton, speaking during a University of Arkansas System Division of Agriculture Food and Agribusiness Series Webinar. “They’re like sister grains. They are fraternal twins, not twins in the identical sense.” (To watch the webinar, go to

Hamilton, president and senior economist for Austin, Texas-based Firstgrain Inc., said farm-gate prices have been in a decline since 2014. “They’ve been causing misery for producers around the world. Industrial commodities like crude oil have been moving up. It’s a proverbial input/output squeeze that’s going on right now.”

It doesn’t happen often, but occasionally wheat and rice prices move in tandem. The current situation leads Hamilton to believe farmers could see a low in food grain prices by October of this year.

Some market fundamentals paint a less-than-rosy picture for grain prices, Hamilton notes. China, for example, is currently holding 52 percent of the wheat stocks, 39 percent of the corn, 45 percent of the cotton and a whopping 67 percent of the world’s rice supplies.

China’s stocks

“China has more rice than it knows what to do with, more corn than it knows what to do with, more wheat than it knows what do with,” he said. “I don’t know why their stocks are so high. They may be doing it for some strategic reason, or maybe they’re concerned about climate change or about trade.

“It’s a military secret; rice stocks are a military secret in China. If they’re this high, that doesn’t necessarily mean they will unload them on the world.”

Hamilton says rice growers have several questions they need to answer if they’re going to look at the global situation beyond Arkansas. The first is whether India can feed itself given the continued expansion of its population?

“Of course, it can. In fact, it’s exporting rice now,” he said. “Can India continue to export its rice on the pace it is now? Probably not. I hope to make a point to suggest that maybe exports will go down or stay the same.”

The second is whether China’s rice imports will increase? “Everybody I’ve talked to everywhere says that in five years China will be importing more rice than it is now,” says Hamilton.

The third is will the U.S. continue to export rice? “Yes,” he said. “The situation looks glum, but it’s not as glum as it would appear to be on your farm.”

Wheat and rice prices

What about the relationship between wheat and rice prices? “Every now and then what the wheat price does can have an impact on the rice price,” Hamilton notes. “And when the wheat price is not going down, but going up, the rice price has a chance to go up. There is some substitution effect, although it’s not quite clear how that works.”

Among the many analytical tools he follows, Hamilton says he watches a chart that includes an oscillator of a five-year moving average price for wheat along with monthly movements of wheat and rice prices going back for decades.

“The last time these lines crossed was in February 2002,” he noted. “We’re coming up on a potential crossover in this average. Generally speaking, over the last 50 to 100 years, when this average crosses over, wheat prices get jumpy.”

The fundamentals are somewhat supportive because of problems with the wheat crop in Russia, the Black Sea, Europe, Australia and in other wheat-growing regions, according to Hamilton.

“When that crosses, probably by October, I may get a little more bullish than I am now. But I believe, in the next year, rice prices will go higher. They will at least go up to the previous highs and probably go higher.”

One reason is that supplies of rice available for export are becoming thin. “Six years they’ve gone down,” he said. “The last time this happened was in 2006-07. That was when the price for rice went up.”

India top exporter

Farmers who follow the world rice markets know that India has become the No. 1 exporter. Hamilton believes India’s rice prices are about to go higher because of the internal support the Indian government provides its farmers.

“About 15 percent of India’s economy is agriculture, but somewhat less than 50 percent of the voters are farmers,” he said. “They demand a voice, and the politicians listen. The rice support price has been raised by 13 percent for the new crop, which means the (export) price will be higher. People in India are wringing their hands about being able to sell the rice.”

Water is also becoming an issue in India and China where rural and urban areas are fighting over allocations of water. Those battles could lead to what Hamilton and others have begun calling “regulatory droughts.”

Meanwhile, Brazil’s stocks of rice have dropped to zero following several years of unprofitable production. “We’re at the lowest stocks level in Brazil since 1983,” Hamilton said. “So, the long and short of it is I think we could have a bull market on our hands in the food grains.

“It’s already more volatile than the last time I advised people we were entering a bull market. That was in 2006, and I just happened to be right on that one. The price went up. In this particular case, we’ve got a wider range so it’s a lot more unstable.”

About the Author(s)

Forrest Laws

Forrest Laws spent 10 years with The Memphis Press-Scimitar before joining Delta Farm Press in 1980. He has written extensively on farm production practices, crop marketing, farm legislation, environmental regulations and alternative energy. He resides in Memphis, Tenn. He served as a missile launch officer in the U.S. Air Force before resuming his career in journalism with The Press-Scimitar.

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