Drought is gripping much of prime southern U.S. rice-growing area and acreage is down this year, so prospects of a reduced harvest have helped support prices.
Meanwhile, California growers are on track to bring in normal yields.
In Arkansas, where growers usually produce nearly half the nation's rice, USDA reported 56 percent of the state's crop in good to excellent condition as of July 24, down from 64 percent a year ago. In four other major Southern rice states – Louisiana, Mississippi, Missouri and Texas – crop condition also is not as good as it was a year ago.
In California, which produces about one-fourth of U.S. rice, the good to excellent total as of June 24 was unchanged from a year ago at 80 percent, with 45 percent of the crop rating excellent.
“The big problems are still going to be in Arkansas,” said Jack Scoville of Price Futures Group in Chicago. “We're still quite a way from knowing how they are going to do, and acreage is an open discussion too.”
Eric Wailes, a University of Arkansas economist, said that even though rice prices respond largely to international markets, the Arkansas crop likely has contributed to price strength. “We know it's going to be a short crop because of the flooding that took place early in the year,” said Wailes. “Prices at planting favored beans over rice. That contributed to a shorter crop.”
Scoville said he's heard early harvest reports from Texas indicating yields are “really quite good” despite the drought. “So far, yields have come pretty close to average,” he said.
About 6 percent of the country's rice crop comes from Texas, while Missouri and Mississippi each add slightly more than that. Louisiana accounts for about 13 percent of the crop.
Long-Grain Output Falling
USDA's latest supply and demand estimates project total rice production at 187 million hundredweight, down from 243 million last year and 220 million in 2009. The July estimate of 2.68 million planted acres, adjusted down from 2.85 in June, would be the smallest rice plantings since 1987.
All the drop in the production forecast is in long-grain rice, which accounts for about three-fourths of the country's rice crop and is produced in southern states. USDA projects the medium- and short-grain crop at 63.5 million hundredweight, up 3.7 million from last year but off 3.6 million from two years ago. California produces around three-fourths of the country's medium- and short-grain rice.
No Complaints in California
Chris Crutchfield, president of American Commodity Company based in Sacramento, says California's crop is rebounding from last year and solid exports are helping keep prices strong.
“In the past year, generally, it's next to impossible for anyone in the California rice industry to complain, especially when we compare to our brethren in the South and Delta region,” said Crutchfield.
Last year, heavy spring rains until mid-May delayed planting and California's rice acreage slipped to around 535,000 acres, but this year it's back to a more normal level of at least 575,000 acres.
“The majority of the rice got planted in the time frame that it should, from late April to late May,” he said. Some planting ran two to three weeks late. The growing season was cool into early July, but temperatures in late July reached the upper 90s or 100. “Heat indexes are starting to be back up to levels of 2008 and 2009, and 2009 produced record yields,” said Crutchfield.
USDA this summer reported higher-than-expected use of rice in 2010-11. For next year, USDA analysts project domestic use of 127 million hundredweight, compared with 133 million and 124.4 million in the past two seasons.
Ending stocks of long-grain rice may drop to 17.3 million hundredweight a year from now, compared with 39.3 million in the year ended July 31 and 23 million last year, reported USDA. Projected stocks of 10.9 million hundredweight of medium- and short-grain rice next summer would be midway between stocks this summer and last.
With projected 2011 production down and stocks tightening, USDA expects a drop in long-grain shipments to take total rice exports down to 100 million hundredweight, compared with 113.5 million last year.
California Exports Solid
Crutchfield expects exports of California rice to hold up well, and USDA projections agree. “There's high demand for premium-quality, medium- and short-grain rice around the world,” said Crutchfield. “People are prepared to use it as table rice and pay a higher price for it.”
A lack of exportable surplus from some key exporting countries helped California shippers capture more exports in recent years, but Crutchfield expects at least a portion of the new export markets will stay with California rice.
Watch Signals from Thailand, India
Given the production challenges in southern rice areas, Scoville says, “We have a very good chance of being barely able to fill our own demand and core exports. That implies there is still price rationing to be done.” He says relatively strong prices in Asia support prospects for higher prices.
Arkansas economist Wailes has a more restrained view of price potential.
“The prospects are firm,” said Wailes. “I wouldn't say up.”
International price support is coming from Thailand, the leading rice exporter. Thailand's newly elected government said it would increase intervention prices for rice producers, effectively providing a price floor for the rest of the world. If Thailand changes that plan, the result may be lower rice prices.
Pressure also could come from India if it decides to aggressively export rice from supplies that have been rising in recent years. “They certainly have the stocks to do that,” said Wailes.