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World rice market ponders big crop, tight stocks

Tight global rice supplies will lead to slightly higher world prices in 2006, but rice trade is expected to decline because of good supplies in major importing countries, according to Nathan Childs, senior rice market analyst, USDA’s Economic Research Service.

Childs, speaking at the 2005 USA Rice Outlook Conference in Austin, Texas, noted that despite the second largest rice crop (406.1 million tons in 2005) the world has ever produced, total supplies are projected lower for the fourth consecutive year as projected world rice consumption (414 million tons projected) continues to outpace production.

Larger rice crops are projected for 2005-06 for China, Burma, Nigeria, Thailand, Bangladesh, Indonesia and Australia. Smaller crops are projected for Brazil, South Korea and the EU.

According to Childs, world trade is projected to decline in 2006 due to smaller imports from Sub-Saharan Africa and Asia. Exports are projected lower in Vietnam, India, China, Pakistan and Egypt. “Large importing countries are taking less rice because they have fairly large supplies due to bigger crops,” Childs noted.

Global ending stocks are projected to drop about 11 percent in 2005-06, the fifth consecutive year of declining global stocks. Global stocks will be the lowest since 1982-83, while the stocks-to-use ratio is expected to be the lowest since the mid-1970s.

“We expect global trading prices to increase some in 2005-06, especially for medium grain rice, which is grown in California, Australia and Egypt and purchased by Japan, North Korea, South Korea and Taiwan,” Childs said.

Long grain rice trade, which comprises 75 percent of all world trade, is expected to decline in 2006 with Sub-Saharan Africa and Southeast Asia not importing as much. “There will be a little bit of an increase in imports from South Korea which will be offset by a decline from Turkey.”

Long grain rice prices, even with the weaker trade, will be up slightly in 2005-06 because of tighter supplies. “But we expect medium grain prices to be very high in 2005-06, due to tight supplies from almost every supplying country.”

Bullish factors for long grain prices include much higher fuel and input costs worldwide and the tighter supply situations, especially in India, China and Brazil. “India’s crop is projected down slightly, China’s crop is up, but its supplies continue to contract and Brazil’s supplies continue to contract.”

Bearish factors include the weaker import demand from Sub-Saharan Africa and Southeast Asia where there were record and near-record crops,” Childs said. “There are also record to near-record crops in four of the five major exporting countries, Thailand, Vietnam, United States and Pakistan.”

A big bullish factor for medium grain rice, which accounts for 12 percent of all trade, is the huge drop in California’s production, a 27 percent decline from a year earlier. “Yields are the lowest since the last 1990s. The crop got off to a late start and encountered difficult weather.”

Childs noted that medium grain rice is usually produced and purchased by higher income countries. Major exporters are the United States, Egypt, the EU and Australia. Big buyers include Japan, South Korea, Taiwan and Turkey. “Increased WTO imports by South Korea could help boost prices. Higher input costs for all producers is also a bullish factor.”

Bearish factors begin with Australia, “which is expected to bounce back from three years of dismal crops. The crop projection for 2005-06 is more than doubled from the size of the previous crop. They have substantially more water, area is projected up significantly and they should have a lot of rice to ship into that medium grain market by late spring or summer of 2006. This should have a tendency to push prices down some.”

Childs noted that the four-year decline in global ending stocks “is not expected to continue. The rice market cannot continue to go into each year with smaller supplies.”

In addition, the world stocks-to-use ratio for medium grain rice is the smallest since 1976-77. “So we have declining stocks and declining stocks-to-use ratio, both of which tends to push prices up.”

While global trade for all rice is projected down about 8 percent in 2005-06, trade is expected to continue to grow in the long term. “Within the decade, we expect it will certainly more than surpass previous records.”

Meanwhile, the difference between the U.S. price and the Thai price has widened and is now over $40 a ton. Late summer, it was almost zero.”


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