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Will Brazilian drought help rice prices?

Drought conditions in Brazil and Paraguay may help rice prices.

Forrest Laws

March 21, 2022

This probably isn’t a secret to most rice producers: Rice markets are different than those for other commodities in that, for openers, they are dominated by two countries – India and the People’s Republic of China.

The latter is unusual in that it is both the largest exporter and importer of the grain, according to Milo Hamilton, co-founder and senior agricultural economist for Firstgrain Inc., which publishes a newsletter for rice farmers and buyers.

Because it is the largest exporter and importer, China can do unusual things with rice, such as feeding it to poultry and hogs, something that would probably never occur in the U.S. market. Hamilton believes China may have fed as much as 50 million metric tons of rice to livestock because of high corn and soybean prices in recent months.

“Now that may not seem like a lot of rice to you, but 50 million metric tons is more than all the rice produced in the Western hemisphere, which is about 5% of world rice production,” Hamilton said during a presentation on the rice outlook at the Mid-South Farm and Gin Show in Memphis, Tenn.

“They’re consuming this much for animals, and you don’t see it in their stocks numbers because they keep going up,” he noted, referring to a chart depicting the ending stocks of the major rice exporters. “But nobody really is sure what’s going on in China. That’s why USDA gives numbers with and without China.”

Ukraine's influence

Although the markets are very different, Hamilton says he follows prices for rice and wheat, which has been in the news because of the Russian invasion of the Ukraine. Wheat prices were limit up for several days because Ukraine is a major exporter.

“Because of what happened last week rice is at a new low to wheat,” said Hamilton, who spoke on Feb. 26. “As someone said this week, for rice sometimes nothing happens for decades, and then, in a week, decades happen. We’ve had a decade happen, and we don’t even know what the full implication of it is.

“I'm fluent in and read Russian, and I know there’s no relationship between Russia and rice, but it could leak over to other areas. For example, if China decides to invade Taiwan, there are all kinds of implications for the world rice market. And I don’t think they're very bearish.”

Hamilton said that he has noticed in his 40 years in the rice market that the rice ratio to wheat can go very low and then reverse itself. (The week before he spoke it was at .08.)

“There’s different reasons why that happens, but we’re now at a very low ratio for wheat to rice,” he noted. “In the next six months, my hunch is the rice price is not going low in the U.S. It’s going to go high.”

Drought advantage

Unlike those for other commodities, rice prices were depressed for much of 2021. But Hamilton said the drought conditions in Brazil and Paraguay that have helped soy prices could also be a plus for rice.

Midsouth rice farmers should watch three markets – those in the U.S., South America and Asia. “You have to think all three markets simultaneously,” he said. “Sometimes one market or the other doesn't matter, but a key market is Brazil. They’re the largest producer and consumer of rice in South America, and they’re a net exporter of rice in the world market.

“When Brazil has a lot of rice, it can cripple our export offer from the Gulf. Back in January, when everybody was so bearish on the Brazil market, I said we needed to watch it, and guess what happened? It went up 30% in the last three months. I don’t think this move up is over because they’ve had a drought there which has affected corn and soybeans. It’s also affected rice.

The Parana Basin (in southern Brazil near Paraguay) is dry. “Paraguay sells to Brazil, and, if Paraguay lacks rice to sell to Brazil, then Brazil stops exporting as much rice,” he said. It’s a very simple phenomenon, and I don't know where this market in Brazil will stop.”

The Asian market, meanwhile, remains low and is putting pressure overall on rice prices. “That’s why when everything else went up last year, the only market that didn’t go up was rice.”

About the Author(s)

Forrest Laws

Forrest Laws, senior director of content for Farm Press, 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 now oversees the content creation for Delta, Southeast, Southwest and Western Farm Press. 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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