The Chinese government could tell its farmers to plant no rice this year, and the country would still have enough of the crop on hand to feed its population well into 2020, a veteran market analyst says.
That’s a rather sobering take on the massive stocks being held by the world’s largest rice-consuming country. It’s also part of a rather bleak assessment of the outlook for the world’s rice producers, including those in the United States.
“We do have to realize China is carrying about 79 percent of its annual consumption in stocks,” says Jeremy Zwinger, CEO and president of The Rice Trader, Farm and Trade Inc., and the International Commodity Institute. “I tell people China has the ability to be the largest exporter in the world.”
Zwinger’s comments came during a webinar presentation he shared with Shawn Hackett, president and founder of Hackett Financial Advisors. The webinar (https://youtu.be/SZ_JR1OlsdM) was part of the University of Arkansas System Division of Agriculture’s Food and Agribusiness series.
Rice isn’t the only surplus commodity in the Chinese agricultural sector. Zwinger says China is believed to have 75 percent of its annual consumption in stocks of corn. Its wheat stocks may total 117 percent of annual usage. U.S. cotton farmers are just now seeing the results of China drawing down its massive stocks (which reached 66 million bales at one point).
Soybeans are one of the few crops that China doesn’t have massive stocks of. Latest estimates put its soybean stocks at about 18 percent of total usage, and soybeans are one of the few crops China imports on a consistent basis.
Rice stocks number
“From what I have heard, it (the rice stocks number) is relatively accurate,” says Zwinger, who acknowledges China’s statistics sometimes are questionable. “It is around 105 million to 115 million metric tons or almost one year’s supply for China.”
China reportedly imported 5 million metric tons of rice in 2018, and it may have exported 3 million metric tons. “And they still increased their stocks by 4 million metric tons.
“Is that data real?” Zwinger asked during the webinar. “How wrong could it be? Five percent wrong? Ten percent wrong? Even at 10 percent wrong it does not change the point that stocks are ridiculously massive there. It will affect trade.”
How long would it take China to reduce those stocks? “If they wanted to take it down by 5 million tons a year; first, they would have to stop all imports; or have a crop failure. By most assumptions it would take them 20 to 30 years to take these stocks down to a normal 20 percent.”
China reduced its surplus stocks of cotton through a series of auctions that enabled the fiber to be bought by Chinese textile mills at prices below China’s support levels.
Since China can only consume so much rice, it might look outside its borders for more sales.
“A lot of people believe they will be the third biggest exporter this year,” says Zwinger. “I personally think they have the ability to become the biggest rice exporter in the world. There’s talk about China importing rice, and that can happen. But given these stocks numbers, they have the ability and probably the need to export more than anybody in the world. That needs to be understood for rice.”
World rice production
Zwinger said he and his associates are predicting 2019-20 world rice production could reach 500 million metric tons after rising steadily since the early 2000s. Ending stocks are expected to total more than 140 million metric tons.
“Not since 2001 has the stocks-to-use been this high,” he noted. “The point is made that that’s all China. I have this in yellow here, and it’s not all China. This represents one of the largest stocks without China in history. China is playing its part, but without China we still have huge stocks of rice.”
Those stocks and the steady increase in production are creating an unusual situation in the world rice markets.
“A key point not well understood is affecting prices and demand,” he said. “That is the many new sources of rice. If you’re going to buy 5 percent broken kernels there are almost 10 places to buy of major origin. The Cambodians and Chinese have come onto the market.”
This is occurring at a time when world rice trading is declining. “Rice exports were down about 15 percent in 2018 to their worst level since 1997,” according to Zwinger. “First quarter trade was down another 9 percent for the U.S. That’s very negative for the U.S. going into a new crop with large stocks.
“To add to that we had record imports — about 14 percent of our total usage on the year. We had almost 1 million tons of milled rice coming in.”
U.S. farmers are expected to plant about the same numbers of rice acres in 2019 that they did in 2018, according to USDA’s March 29 Planting Intentions Report.
“With a farm bill that is more beneficial to rice than to most other crops, people will defend their rice payments,” Zwinger said. “They will defend their rice acreage base to the best of their ability. I do not expect much of a decrease.”
The forecast may be off somewhat for California, he said. California rice farmers are talking about planting 530,000 to 550,000 acres of medium grain rice — if the weather allows — which, again, will increase stocks.
Zwinger acknowledged his outlook is negative. “I am known as a bullish person naturally. I am bullish on the overall food complex because food is valuable, but, in the short term, I am very negative.
“I look at supply and demand, and it is tough to be positive,” he said. “There are positives now with the weather concerns. But later in the year it could be extremely negative.”
There are some areas of hope, he said. One is in Africa where rice production has been declining while consumption is increasing despite efforts to bring improved production practices to that part of the world.
“You cannot consume 37 million metric tons and only produce 21 million without spending massive amounts of money every year,” he said. “It's interesting you have a downtrend an African rice production while you have a significant uptrend in consumption. This is one area of hope; a hope and an opportunity with a caveat.”
For more information on the University of Arkansas Food and Agribusiness webinars, visit http://bit.ly/2Imk2DA.