Sometimes when commodity prices have been falling for what seems like forever, the markets will suddenly turn upwards and give farmers an unexpected opportunity to sell their crops at a slight profit.
That short-term recovery is often called a dead cat bounce, referring to what happens if you drop a dead cat off the side of a grain bin, metaphorically speaking. It will bounce; it won’t go very high, but it will bounce.
“I believe we’re going to see a dead cat bounce in the price,” said Milo Hamilton, co-founder and senior economic analyst for Firstgrain, Inc. “By that, I mean it could go much higher. It did the same thing in 2009 – I was on top of that. In that dead cat bounce coming off of those prices, it went up to $16 per hundredweight.”
Hamilton, who spoke during the Rice Marketing Educational Seminar presentation for the virtual Mid-South Farm and Gin Show, said that upturn represented a 38% Fibonacci retracement, a technical analysis term used in stock and commodity trading.
“I think it's conceivable that the Western hemisphere could have prices between $14 and $16 per hundredweight – or $6 to $7 per bushel – over the next six months, which would allow those who remain in rice to make a little money,” Hamilton said.
Planting fewer acres?
Part of the reason, as Hamilton explained earlier in his presentation, is that U.S. growers could plant 20% to 30% fewer acres of rice in 2021 due to significantly higher soybean prices that have prevailed since the end of 2020.
“We're at 25-year lows on the rice-bean ratio with rice at 41% of the price of beans,” he noted. “When it gets below 56%, which is the long-term average, you start to see rice go into soybeans or corn. We have never had a period with such a low rice price relative to soybeans where we didn't see pretty big cuts in the Delta acreage.”
The other factor is the Brazilian rice crop could be 5% lower than in 2020 because of drought conditions in the largest rice-producing country in South America.
“The February period was the second driest month on record,” he said. “The problem is that their rice is not grown with wells; it's grown with reservoirs and river water. So it's a totally different culture. You can plant the crop, but you may not be able to harvest it.
“Bottom line is I think you’re going to have a stronger rice price. In 2021, we may not have a primary bull market, but we could see moments of hedgeability, particularly if the dollar gets weaker. We always think the price is going to go down, and that's not necessarily the case.”
Hamilton also questions whether Asia will have a 16th year of favorable rice weather. “In Asia, that's a long time to have a really good outturn. We're probably going to continue to see a La Nina, but I really can't forecast the climate. I leave that to people more knowledgeable than myself.”
A weakening U.S. dollar could also mean a better export climate making U.S. commodities cheaper to buy and other countries’ crops more expensive.
“Right now that dollar is heading down,” he noted. “It may have made a low, which is something that the economists at CoBank suggest may be happening. If the dollar continues to head down and beans continue to head higher, we're going to see more and more rice acreage go over the beans in the next two months, irrespective of the planting.
“I think it could be the beginning of a good year for rice, with China being a leading factor to watch,” he said. “I hope it turns beneficial for all of us in the year ahead – if you decide to still grow rice.”