Market Update - Rice Market Continues a Complicated Path

October 28, 2022
Harvest is complete, and that’s the good news. With all eyes turned now to marketing the crop, there are several challenges that must be overcome in the local and global market. For starters, yields were off by about 5% in most states this year. That’s not the end of the world, but always hits farmers in the pocketbook when this is the case. Worse for the mills though, is that the milling yields are also off compared to historical figures. Mills are citing that it would be an improvement to have an average head rice of 55 this year, and that seems to ring true in all southern states. Lighter yields and poor quality lead to a reduced supply, which often results in higher prices. This is likely not the case this year because prices are already so high; be that cash prices to farmers, paddy shipments to Mexico, or milled rice domestically.

Looking at paddy shipments to Mexico might provide the starkest example of where the long grain industry finds itself.  The U.S. industry used to enjoy almost 100% rough rice market share in Mexico, but that has deteriorated significantly in recent years due to multiple factors. Mexico now finds itself oversupplied with rice from South America, namely Brazil. Most warehouses are filled, and there are initial reports that consumption may be decreasing in the region. Remember that Mexico also passed an “anti-inflation” bill that resulted in zero duties on rice imports from South America and other origins. This was supposed to end on December 31, 2022, but has already been extended through the first quarter of 2023, with speculation it will get extended beyond that. To boil it down, U.S. rice is more than 20% more expensive than Brazil and the other Mercosur origins, and any freight advantage is currently a non-factor. Mexico warehouses are full, domestic consumption may be down, the zero import duty has been extended, and the value of the dollar continues to increase, making exports more difficult. We don’t bring these points up to paint a dramatic picture, but to bring to light the reality of the situation this market is facing as we sell this year’s crop. We realize stocks in Mercosur are getting low as planting season there is in full swing. Markets can change quickly and it was only a couple of years ago that Brazil purchased several paddy vessels from the U.S. Many believe that 2023 will be a pivotal year as we will begin a formal process for the next farm bill that will take vital importance.

Currently, the export sales report shows that exports are off by approximately 50% from this time last year. While this trend may not continue for the duration of the year and is likely overstated, it does paint a picture that our exports are seriously lagging behind historical norms. It is difficult to see any of this changing before the new year, and at that point, we will need a big buyer like Iraq to come to market, or a miracle in Haiti so that we can actually unload the rice we have ready to deliver there. The domestic market remains strong and is the sole bright point at the moment. All this to say, if you’re a producer holding rice and have the offer to sell, it might be a good time to consider liquidating and not waiting for higher prices in the future. They certainly could materialize, but there are several factors that could inhibit that from happening in the near term.

In Asia, prices seemed to have softened a little bit. Thai 5% is quoted at $410pmt, down from $415pmt last week. Viet also dropped $5pmt, down to $425pmt. India continues to be the lowest, right in line with last week in the $380-$385pmt range.
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