Spend Matters welcomes this guest post by Loraine Hudson, of Mintec.
After over two years of price falls, the price of U.S. white long grain rice has risen 3% since August. That might not sound much, but if you’re a rice farmer in the U.S. it will be music to your ears. It’s been tough for U.S. rice farmers since mid-2013, with cheap Asian imports and falling commodity prices globally.
In the summer of 2013, things looked promising for U.S. rice farmers. Yields were historically high, production had recovered from a disastrous year in 2011/12 and prices had returned to the highs seen in 2010/11. But there was a wind of change in the air — things were going to go from good to terrible in just two years, and rice prices would fall by 20% between August 2013 and August 2015.
Since 2013, many major rice producing nations have had record production years, including the largest exporters: Thailand, India and Vietnam. In 2011, Thailand introduced a scheme to restrict supply to the global marketplace and in turn push rice prices higher. It was a scheme that backfired massively. India simply stepped in and filled the export space that Thailand left, increasing its exports by 270% to over 10 million tonnes by the end of the 2011/12 season and maintaining those export levels until 2014/15. This left Thailand with huge stockpiles of rice to sell, and the release of these stocks caused the price of Thai rice to fall sharply during 2013, driving down the price of rice in other producing nations, including Vietnam, India and of course the U.S. Thai rice prices continue to be low and in October 2015 they were 25% lower than August 2013.
The low price of Asian rice made U.S. rice appear less competitive in the global market, and consequently exports of U.S. rice fell to a seven-year low in 2013/14 to 3.0 million tonnes. Although forecast at 3.1 million tonnes in 2015/16, U.S. rice exports are still down 8% on 2012/13 levels. At the same time, U.S. rice imports have risen by 20% from 0.67 million tonnes in 2012/13 to a forecasted 0.82 million tonnes in 2015/16, as Asian rice sellers look for more and more markets to sell to.
As a farmer with a lot of rice to sell and cheap imports to compete with, there are a couple of options — store it and wait for prices to rise, or sell it cheap and hope next year is better. To protect themselves further, farmers will reduce acreage of low-priced crops and convert to more economical or higher-priced crops where feasible. U.S. rice acreage has fallen by 4% since 2012/13 and stocks have risen 10% in the same period, but with nearly all alternative crops also priced at multiyear lows and wheat, corn and soybean farmers looking to protect themselves, there is little more rice farmers can do to protect their livelihoods.
This is why a small rise like 3% is manna from heaven. The recent rise in prices has also come at the fate of the gods in the form of El Niño. The weather phenomenon has caused widespread drought across many of the Asian rice producing nations, reducing forecasts for production in Thailand, Vietnam and India. El Niño also caused flooding in the southern states earlier this year, causing rice yields to fall from 8.5 tonnes per hectare to 8.3, resulting in rice production in the U.S. forecast down in 2015/16 by 15% year-over-year to 6.0 million tonnes.