Eroding rice prices seen during the past several years have forced many producers and traders into a state of anxiety. Like other commodities, the price of rice moves in step with supply and demand factors. Longstanding oversupply has hurt the industry by driving prices lower and reducing or eliminating profits. Even an optimistic reading of current rice data leaves little reason for analysts to forecast higher price values for the 2001-02 season.
On the positive side, the U.S. Department of Agriculture (USDA) estimates show declining rice supply. Global production of rice this year is projected to decline just over one million tons to 394.44 million tons, while total use is expected to increase by approximately 4 million tons. Global ending stocks are projected to drop by over 10 million tons from 2000-01 to the 127.23 million ton level for the 2001-02 season. Based on economic principles and this data, one would expect prices to rise.
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Simply isolating these positive figures misses an important factor; major rice exporting countries (China, India, Pakistan, Thailand, Vietnam, and the U.S.) currently hold nearly 89% of the world’s rice stocks. In these countries, politics, storage problems and costs, and efforts to expand market share combine to ensure strong competition and overall negative price pressure.
Efforts by various governments to support the rice industry and prices locally in the short-term, year after year has had a negative long-term effect for the industry as a whole. Government policies take away the effectiveness of economic mechanisms. With intervention programs in place, production is not reduced to the extent it would be if government support was not a factor, and abundant supplies prevail.
In India, for example, government efforts to assist farmers and the rice industry by procuring rice at a higher rate than the market can support have helped buffer stocks to swell to an unmanageable 22 million tons. The Indian government is now desperately looking for a solution, and has been reluctant to subsidize export prices further to compete.
Lowering the export price further in India would likely promote more interest from buyers, but would not reach levels high enough to promote a large reduction in stocks. The action would also ensure more losses by the Indian government, and would likely lead to price cuts by other countries also eager to make sales. India is now preparing for harvest and further procurement of rice. Given this reality, it is easy to expect the oversupply problem in the country to remain central for the visible future.
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By GlobalDataDuring the past several weeks, U.S. rough rice futures prices have plummeted. Rice futures prices react to U.S. and global demand and industry news. Futures prices, and the movement of the futures market, indicate traders’ perceptions on various supply and demand scenarios. Recent low prices for all futures contract months provide yet another indicator that there is little obvious reason to hope for rice prices to rise this year.
Most U.S. industry analysts expect a record 2001 U.S. long grain crop against limited prospects for large-scale exports and stiff global competition. As the gap between higher priced U.S. rice and competitors’ rice narrows, competitors may simply react by lowering prices themselves. Opportunities for trade are finite. Countries gain greater market share only at the expense of the competition.
The USDA projects the global trade of rice to remain steady at just over 23 million tons in 2001-02. This tonnage would mark less than one-fifth the amount of the total (beginning stocks) supply held by the major exporters.
On the demand side of the economic equation, interest from major rice importers remains inconsistent, restricting trade possibilities. Most traditional importers currently appear to have sufficient supplies to cover needs. Noting the large supplies, buyers feel little pressure to make purchases.
It is the same forecast we have heard for the past few years. Large dark clouds continue to form on the horizon. Prices are likely to fall on limited demand and global oversupply.
There is no doubt that a shift in demand can quickly change the outlook. Traders are already discussing the possible return of the devastating El Nino weather pattern. Countries around the globe may need to rely on existing supplies. Sometimes planning an adventure even when the forecast looks threatening is the best way to live. You are prepared for action even with the smallest break in the clouds.
Oryza (www.oryza.com) is an Internet site designed to meet the specific needs of the global rice industry. In addition to rice news, prices, and analysis, the web site includes a service directory and a trading floor.
