What will the coming year hold for rice growers? Jay Davis III, who runs East Bernard Rice Marketing in Texas, has some ideas.
“Essentially, I’m an agent for farmers and am responsible for sourcing prices, providing pricing information and an analysis of the market so they can make good decisions,” said Davis at the recent 2010 Conservation Systems Cotton and Rice Conference in Tunica, Miss.
Among chief irritants for rice farmers is USDA reporting on the crop, said Davis. “We’ve criticized, fussed and cussed with regard to the USDA rice reporting and its accuracy. The thing that’s most disheartening is the USDA reports have begun to affect our bottom lines a lot more in the last couple of years than they did prior.”
The reason for that is “prices are higher and there’s more volatility in the market. The little rumors, the little stories and little reports we get from the government have a greater and greater impact on our bottom line on a minute-by-minute basis.”
The U.S. Rice Producers Association has had “a number” of meetings with NASS (National Agriculture Statistics Service) and USDA officials regarding rice analysis. “It’s an ongoing thing and we’ll continue to be impacted daily, month by month, as USDA reports come out. With continued volatility in the market — which we see continuing in 2010 — the reports will continue to impact the grower.”
The futures market is certainly something growers have been watching much closer. “When the futures market is moving at 40 cents to 75 cents after a limit day, you begin to get uncomfortable and nervous about what’s being reported, what information is going out in the marketplace and whether or not it’s accurate.”
Are the USDA numbers accurate? “To some degree. But there’s always more to the story.
“Whether we agree with production numbers or the carryout numbers is really immaterial. Those impact us and influence the market today. We saw numbers in the WASDE (World Agricultural Supply and Demand Estimates) report that had a negative impact on every market you can imagine — crude oil prices were down $2, corn prices were down, soybean prices were down, rice prices were down, and cotton prices were down. Even the dollar was down a bit, which is a little funny. Typically, when the dollar is down a little, we begin to see a more positive influence on commodity markets.”
Davis flashed January WASDE report numbers on the screen. “You can see we actually had an increase in planted acres of 10,000. Yet, harvested acres stayed the same. Somewhere during the course of reevaluating things, (analysts) found an additional 10,000 acres.”
In the report, U.S. yields went from 7,038 to 7,085 pounds per acre.
“Now, think about where your 2009 yields were compared to 2008. Are these numbers accurate from that standpoint? I think the jury is still out. There are people who were very happy with their yields — especially on early-planted rice. Later on, when the weather turned bad and rice went down, as rice sprouted, there were more issues. And I don’t think we’ve felt the full impact of those issues just yet.”
Davis was careful to state he doesn’t believe USDA rice numbers are intentionally misleading. Instead, “we’re not getting the whole story. There tends to be (reliance) on trend lines, historical changes, they tend to hear the good news and not the bad.”
For example, “production this year is impacted by your yields — milling yields. Several years ago, in Texas we had a lot of rain, sprouted rice … and we saw the totals of our rice drop dramatically. It’s my belief we’ll see that in Arkansas, in northeast Louisiana, in Mississippi and Missouri. As you begin to get grades on your rice, you’ll find instead of a 70 total, you’ll get a 68 or 66 total. That occurs as a result of the eye beginning to deteriorate.
“Well, that’s weight. Think of that as a percentage of production. If there’s only a 66 total and you usually have a 70, that’s a 4 percent change in total production. USDA doesn’t take those kinds of things into account.”
Another thing that needs to be properly assessed is business in transit, said Davis. “Anyone in this room who grew medium-grain probably had some of it contracted. Well, that may be an ‘additional’ sale as opposed to a ‘normal’ sale.”
That was experienced in south Louisiana where there was “a tremendous amount of medium-grain planted that was pre-booked. It already had a home. Kellogg’s moved its medium-grain business from California to the South. As a result, that rice is gone. Yet carryover was raised as a result of production even though the rice was sold, committed. There is no good mechanism for keeping up with such things.”
And speaking of medium-grain, the South was “probably a greater contributor to the increase in 2009 medium-grain than a net increase in California. More medium-grain rice being grown in Arkansas and Louisiana has definitely had an impact.”
Davis then shifted to things that will impact the remainder of this marketing year and into next year.
“We believe that because of strong prices — and we’re experiencing good prices both in the United States and overseas — there will be continued pressure to plant more acreage. If that production is successful, there will be an obvious reaction in the market.”
In foreign markets, China has already said it would embrace GMO technology and make headway with it. Part of the reason for that is increased production.
As for the supply side, “I think we’re at least comfortable with supply. As a result of rice being a major staple in two-thirds of the world, there is tremendous pressure on governments and those reporting in foreign countries to mislead and misrepresent so as not to impact or adversely affect their position of power within the government. I think we’re continuing to see this effort overseas.”
It’s certainly happening in India. Starting out, “they claimed they’d be off as much as 30 percent. Every month for the last three months, there has been a gradual increase in their carryover numbers, the amount of production and the amount of extra rice. What’s the truth? That’s what we’ll have to discover along the way. They haven’t bought any rice to a significant degree. As they do buy, the discovery will occur.”
Growers should watch prices of all commodities because “they’re impactful as we make planting decisions for the next several years. Corn prices, soybean prices, cotton prices, rice prices — what makes the best money for you and returns the most? The answer will impact the number of acres in each crop.”
Will demand increase?
“The biggest wildcard in the entire world is India. It’s my belief that, ultimately, we’ll see a little U.S. rice go to India.”
Davis met with a touring Indian delegation a few months ago. “Their stated purpose for being in the United States was to determine how they can manage their inventory control better. Read between the lines and that implies they have a problem. They don’t want to say it, but they came to the United States to find out how our warehouse receipt program works. They wanted to know how we put rice in loan, how the government keeps track, the enforceability of a warehouse having a receipt outstanding without product. You can see the underlying thread running through the questions of this delegation. They were trying to find a way to communicate to their country that there isn’t as much product as their government claimed.”
More international issues
What about the value and impact of the U.S. dollar?
“As we continue to see weakness in the dollar, it typically brings about strength in the commodity markets.
“There was recently a devaluation of Argentina’s currency. As a result, they’re in a position to sell their commodities competitively against the U.S. dollar. The downside is if you’re a guy holding the devalued currency, you’d better spend it quick.”
The idea of hand-to-mouth buying — “and I continue to push this to my farming clients” — is in the current environment of credit issues, “we tend to see fewer large purchases at once. We tend to see more incremental, more regular purchases.”
What about U.S. expectations? Will rice acres increase or decrease in 2010?
“It’s my belief that, regardless of where you are, prices make you money. Certainly, you must make yields for the return to be there. But in terms of average yield and price, you can make money in this market. And when you make money, it’s my opinion that folks increase what makes the money. That means, in my opinion, we’ll see gradual increases in planted rice acreage in 2010.”
Consumption and use will continue to increase. The net effect will be “fairly neutral price changes” going into 2010.
Offering to stick his neck out a bit, Davis said “you won’t like the numbers, but I’ll give you some.”
For prices to increase through the remainder of the year, he believes, “we must have continued buying from Iraq. That’s because when it’s all said and done, you must have milled rice purchases. Mills must be in the market, must be aggressive in the market trying to fill a need. Iraq is one of the main, potential markets that rice mills” can target.
“We’ve sold Iraq roughly 100,000 tons. ADM did all that business. It’s my belief they traded the mills extremely hard because the mills needed to make some milled-rice sales. I think they were desperate to get some milling on the books.”
Another wildcard is Brazil. “Their season began extremely dry and it’s now extremely wet. Their early projections had planted acres being down between 15 and 20 percent in the Rio Grande Do Sul area.”
Rio Grande Do Sul is the largest rice-producing area of Brazil. Davis likens it to Arkansas and the U.S. crop. Rio Grande Do Sul produces about 48 percent of the country’s roughly 12 million metric ton crop.
Brazil consumes about 1 million tons more rice than it produces. Historically, Brazil buys rice from Argentina and Uruguay, “which harvest about 1.5 million metric tons in excess of their use. It’s my belief, because prices have been strong, that Argentina and Uruguay have been very aggressive in their milled rice sales. As a result, their inventory, stocks and carryover have been drawn down to historically low numbers.”
USDA numbers don’t reflect that. However, “based on what I’ve seen following their export sales, the USDA numbers are overstated with regard to Argentina and Uruguay carryout.”
If Brazil can’t get the rice it needs from Argentina and Uruguay, “it must go to the marketplace to buy. In the past, when Brazil has bought U.S. rice it has been as summer approaches. Their purchases typically correspond with the U.S. drawdown.”
Last year, for the first time, the United States exported around 220,000 tons of rice to Venezuela. Columbia “saw a green light and thought we were moving forward with a trade agreement and so bought about 75,000 tons of U.S. rice. That was all rough rice business, which was very positive for the river market.”
A Davis prediction growers won’t like: in 2009, “we’ll have near-term, downward pressure on the market. We’re in a kind of lull in the milled rice market. We’ve made a sale to Iraq and now the mills are looking for the location for additional rice. Until there’s another sale, another tender, there will be downward pressure.
“Volatility is between $12 and $18. That’s a huge gap. If India buys U.S. rice, Iraq buys U.S. rice and Brazil has to buy U.S. rice, we’ll be at $18. If India and Iraq don’t buy and Venezuela buys marginal quantities, we’ll see a very stagnant market. And when there’s a stagnant market, it tends to drift down.”
Farmers often ask Davis how low the market can go. “I tell them, ‘Take $1 off your cost of production. That’s how low it can go.’ There’s always someone out there who had a bit better yield, fewer inputs and are capable of selling their crop a little cheaper than you can.”
Is there any hope for selling U.S. rice to Cuba in the new year?
“The bottom line is there are key members of Congress that have a real burr under their saddle about doing anything with Cuba. Their attitude is: ‘Cuba changes and we’ll change.’”
That won’t happen, insisted Davis. “History shows that Cuba won’t change. China didn’t change. Vietnam didn’t change — look at the way it prices rice. Vietnam has the cheapest rice in the world. That’s because they’ve got a socialist government making socialist decisions.”
Cuba has the potential of changing the U.S. market “more quickly, more positively than anything I can say. But it’s a non-issue until the politics change.
“I hate to say that,” said Davis, who has made three trips to the island nation. “They’ve got to be able to borrow money. We must be able to sell to the Cubans on credit. We can’t expect to continue selling rice to Cuba on a cash basis. Nobody in the world buys on a cash basis — they can’t afford to.”