New Rice Crop Acreage a Big Question Mark06/19/2017
Weather has become less of a concern in rice country as the conditions across the U.S. rice growing region have improved significantly since the last report. From a grower’s perspective, marketing conditions have made notable inroads as well. Much has changed over the past few weeks to bring the market into higher levels not seen in many months. Cash pricing has climbed higher with each passing week as old crop moves into the market and new crop speculation is beginning to heat up.
Acreage totals remain a big question mark for new crop and the market is growing nervous as a result. It is generally accepted that the “official” acreage estimates released early season are inflated. The methodologies used to collect those numbers regulate the changes that can be made to them during the mid-season. As such any losses incurred as a result of flooding or other weather problems are not included in the current projections.
The projections do not take into account grower changes of heart (either by adding acres or removing them) either. With the new crop projections already at marginal levels, any significant disruption to the long-term balance sheet will continue to add uncertainty and volatility to the market.
This appears to be exactly the situation in which the market finds itself, as reflected in both the futures and the cash markets. New crop cash bids are climbing consistently with the open futures contracts, with some new crop bids in the $11.00-$12.00 per hundredweight range. Grower expectations are climbing as well with price targets remaining $1.00 per hundredweight or higher above current bids.
If the market continues to appreciate this trend is well founded. The futures market has yet again posted notable gains over the previous week(s). While the market traded within a $0.27/hundredweight windows for the first few sessions, the release of the weekly export sales report caused a major breakout to the upside resulting in solid returns.
Whether the bulls will remain in control of the market for the long term remains to be seen, however given the trading history over the last several weeks coupled with the current market fundamentals, it is very likely that gains will continue to be made in the coming days.
The export sales report for the week was extremely strong with the first major round of offshore purchases in seven weeks. Using longer ranged trend cycles, the offshore buyers should still be in the market for some additional tonnage in the next few weeks. If realized, this will return the export volume to a more “normal” level.
Asian pricing has experienced similar gains in price. Most indicative bids in the region have strengthened on a weekly basis, almost completely independent of currency exchange rates. It is certain that market fundamentals in that area are at work and that the supply side is causing upward pricing pressure.
The final result is a narrowing in the spread between rice of U.S. origin and its competitors. In government reports, the USDA has again increased its world market price estimate. This marks the fifth consecutive week in a row and is the longest running streak of gains in that report in over a year. Coupled with the futures market and the gains in Asia, it is yet another confirmation that the upward movement is more than just an anomaly.
Finally, last week the USDA released its June World Agricultural Supply and Demand Estimate (WASDE) with a few noteworthy changes. On the supply side, the beginning stocks were reduced by 2.0 million hundredweights. Demand side changes included an increase in exports by 2.0 million hundredweights as well. The net impact was a 4.0 million reduction in carryout and a $0.30 per hundredweight increase on the season average farm price ($11.00-$12.00 per hundredweight).
With the significant level of uncertainties on the production side of the equation, it is to be expected that the upside potential is still significant especially between now and harvest.
Source: The Rice Advocate, U.S. Rice Producers Association