Market Update: It's All About the Weather

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November 17, 2023

The El Niño weather pattern means different things to different regions, and the impacts are far-reaching across the rice chain. For example, El Niño was the reason cited by the Indian government to restrict exports. In California, it means a return to wetter weather and a full-size crop. In South America, its absence has meant drought and a reduced crop last year, and its return has gone so far as to cause flooding in places like Ecuador to reduce their crop. Some have blamed El Niño for the problems with the Mississippi River, and a newly emerging problem is the freshwater drought in the Panama Canal and its ensuing reduction of throughput. Let's not leave out that southern Louisiana is suffering salt intrusion from lack of rain. "If we don’t get 20 inches of rain by planting season, we will cut back 30% on acres,” according to a leading rice farmer. Weather patterns and climate risk continue to play a significant role in the rice market, and being able to respond in a timely manner is of utmost importance.

All this chaos shines a light on the United States as the clear winner in the Western Hemisphere in the next several months — we need only to take advantage of the opportunity. The large crop makes us the only supplier to Central and South America until their harvest in the Spring of 2024, but we are having trouble loading barges due to the low levels of the Mississippi. The poor milling quality and low head yields can be turned into a positive by helping the U.S. industry claw back some of its market share in the parboiled space. Conversations are starting around the possibility of U.S. long grain finding its way to Cuba since Vietnam shipments are getting tied up in the Panama Canal. Even the spread between U.S. long-grain and Asian rice is the smallest it’s been in years because of strong demand from Indonesia and no shipments from India. Every opportunity has its challenges, but things are setting up to be an exciting year.
The monthly FAO Rice Price Update dropped for its second consecutive month for October, but it’s still 24% more than this time last year. The drop was led by Japonica varieties, falling 9% from last month with California in full swing, while Indica varieties dropped 5.3% as the panic works its way out of the market from the Indian export ban. If Indonesia didn’t double its imports in the last quarter of the year, we could have seen more softening in Thai and Viet prices, but Indonesia’s insistence on procuring supplies for food security in the event of severe weather events has kept the pressure on prices.
The monthly World Agriculture Supply and Demand report was just issued and offers a relatively sideways outlook for rice. Carryout dropped 600,000 cwt to 22.2 million cwt this month, with few updates for other supply/demand elements. Of note, however, is an increase of 10% in the estimate for the size of the Brazil crop from this month to last month. The new estimate now puts Brazil at 7.5 million metric tons. The increase comes with the return of El Niño and solid rains as high as 200% of normal in some regions. This means more competition for Mexico after May 2024 when the Brazil harvest is ready for export.
The weekly export sales report shows net sales of 36,000 MT this week, down 62% from the previous week and 43% from the prior 4-week average. Increases were primarily for Venezuela and Mexico. Exports of 96,100 MT — a marketing-year high — were up noticeably from the previous week and from the prior four-week average. The destinations were primarily to Iraq (43,300 MT), Mexico (38,300 MT), Haiti (7,000 MT), Canada (2,900 MT), and Jordan (2,200 MT).