If, as some observers are predicting, U.S. rice farmers plant 20% to 30%  fewer acres of rice in 2021; Brazil’s drought continues; and China’s feed demand for rice keeps growing, U.S. rice prices could begin to rebound later this year.

That’s several ifs, but Milo Hamilton, co-founder and senior agricultural economist for Firstgrain, Inc., says that’s how the price situation may begin to play out for U.S. growers who face an explosion in soybean prices.

“If you look at the broad sweep of commodities, the big mover has been gold,” said Hamilton, who spoke during the Rice Marketing Educational Seminar at the Mid-South Farm and Gin Show, which was held virtually this year. “The second biggest mover and the biggest for grains has been soybeans.

“I have a friend in Louisiana who said a farmer went to a restaurant and bought a hamburger. When the bill came back, he took out three soybeans and laid them on the bill. And the waiter returned 25 cents to him. That’s why soybeans are as good as gold now.”

That may be slightly exaggerated, but it’s a dilemma farmers face, given the increase in soybean prices since this time last year when Chicago futures were at their lowest level in a decade.

Hamilton cited two prevailing views about where commodity prices could be headed – A bullish one that the world is at the beginning of a cycle that could last until 2045 and take all commodities higher and equities lower. The second is that prices are low, but they could go lower.

“This comes from the research group at CoBank in Denver which has done some excellent work on agriculture and where things might be headed,” said Hamilton, referring to a slide. “Usually, if it's good news for commodities, it's bad news for equities.

Interest rates, inflation, and new technology

“But why would commodities go lower?” he asked. “Interest rates are very low; inflation still remains low; and new technology tends to drive the costs of things down. So we may or may not be at a crossroads, but I think we may be the crossroads for the U. S. rice price. Rice had a very good year in 2020 and could have some more good times ahead.”

The prices of all grains have been going down since 2008, he noted. “It's rallied up to a down trend line, but it still hasn't broken that line. So we’re at a point where it could go higher or it could top out.”

The U.S. dollar will be a major factor along with supply and demand, particularly China’s need for feed for livestock. “If the dollar goes down in comparison to other currencies, we could see agricultural commodity prices go up.”

Another study by the economists at CoBank compares all of the commodities that are pertinent to the commodities grown and traded in the United States. The study shows the price of rice is largely determined by Asia.

“Actually, that's not quite the case,” he said. “If we're in an oversupply, Asia determines it, but if we’re in short supply that's not the case. In fact, Brazil, which was left out of this matrix because it’s of minor importance in terms of currencies, is very important to rice, particularly in the first six months of the year.

“For us, Brazil is the China of the U S. The study says rice is more competitive than the other grains, which have gone up to the sky and back. But it's not quite as good a story if you look at Brazil. Latest reports say the Brazilian rice crop, which is now being harvested, could be down 5%.”

Crude Oil

Crude oil is another harbinger of rice prices – if crude oil goes down, rice prices go down. “That didn’t work out so well last year, but now it’s starting to happen,” he said. “The crude oil price is going up and could add strength to the price of rice.”

Rice prices in the U.S. generally trend down in February and March and, in Brazil, down into June as harvest pressures prices in the Southern Hemisphere. That’s been the case in recent weeks as prices and the local basis have both gone down in some areas of the Mid-South.

“If you look at the relationship of rice to soybeans, we've got a dramatic problem,” he said. “We are approaching 25-year lows on the spread between soybeans and rice with rice down to about 41% of soybeans. When you get to this level, rice gets cut. We think it can be down 20% to 30%.

“If it is 20% to 30%, we have to cut our exports hard next year. That is why we’re forecasting a price as high as $14 per hundredweight for the coming season.”

What about weather in Asia? Hamilton said China and India have had abundant rainfall in their rice-growing areas for 15 years. “Prior to 2005, they had numerous failures due to low rainfall. Once the rainfall stabilized and allowed them to produce good rice crops, exports and stocks have skyrocketed, and supply has overwhelmed consumption until this year.”

Now India is giving away rice from its stocks. China has been diverting rice from its stocks to help feed the largest swine herd in the world and burgeoning poultry flocks. Some analysts estimate China’s demand for feed could increase by 10 million metric tons this year.

“Last year, some areas of China had double the normal amount of rainfall,” he said. “The work that we have done over the years shows heavy rains reduce a rice crop inside China. They say their crops have been increased. I'm watching very closely because they said a year ago they had more corn than they knew what to do with, and it didn't turn out that way.”