Agriculture

Rice Outlook – Rice Farming

Commodity prices and input costs are key this year.

⋅ H. Scott Stiles ⋅

University of Arkansas, Department of Agriculture

Rice or soybeans – or both? Many Mid-South manufacturers are still struggling with this solution. Deciding on the optimal mix of crops for 2022 is complicated by a number of variables, ranging from relative crop prices and prospects for each, to input costs and expected yields.

Fundamentals of the market

Starting with some thoughts about the rice market, prices for the new rice crop in January are the highest since 2014: futures for September 2022 are trading at $ 14 to $ 14.50 per cent (CW). Given this strength of prices, it is becoming increasingly likely that the Middle South will see stability year after year in hectares of rice. Planting time, weather and direction of soybean prices will also play a key role in determining rice acres. Undoubtedly, manufacturers will see higher introduction costs. However, the rice market sends a clear signal when we start the year with tougher ending stocks.

Despite record rice yields in Arkansas, Missouri and Mississippi, U.S. long-grain production in 2021 fell 15% on a smaller area. As a result, final stocks are expected to fall in 2021/22. Currently, the final stocks of long grain are projected at 21.4 million tsv .; 28% less than last year. This corresponds to a ratio of inventories to use of 12.1% – below the previous five and 10-year average of 14%.

The U.S. Department of Agriculture also predicts that total long-grain supplies will be reduced by nearly 17 million square feet. in the current marketing year to 198.3 million. Historically, the United States is better represented in the export market in years with a total supply of 200 million color. To maintain export market share, the futures market and base are trying to maintain the competitiveness of rice with other cereals.

Source: USDA, Economic Research Service.

Given the relatively low stocks for use in the U.S. long grain balance and historically high prices for competing commodities, it would be difficult to come up with a factor that would lower rice prices in the first months of 2022. it was to be an opportunity for the USDA to cancel its long-grain export projection. The current USDA target for long-grain exports by 2021/22 is 64 million colors; not exactly 2% lower than last year’s 65.1 million.

For comparison, sales and shipments of long grain in the US by mid-January lag behind last year by 10%. Sales of long-grain ground rice increased compared to last year due to 120,000 tons sold to Iraq last July. More than offset the increase in exports of ground rice is a decrease in sales of raw rice by 23%. This sharp drop is largely due to “once a decade” sales that the United States made to Brazil last year. And sales of American raw rice to Venezuela fell by about 128,000 tons compared to the same period last year.

Battle for hectares

In 2022, soybeans will be a major competitor for rice acres in the Middle South. Corn and cotton also compete for acres and provide some price support for rice. Soybean futures in November 2022 began to rise higher in early December (2021) and continued in January due to poor harvest conditions in key areas of South America. For most of January, the November contract for soybeans traded in the range of $ 12.75 to $ 13.35 per bushel. Corn and cotton followed soybeans higher, and contracts for new crops exceeded $ 5.80 and 98 cents, respectively.

If in September 2022 rice futures traded at 7-year highs, it is clear that rice prices are at least trying to provide the same relative profitability as soybeans. In this era of extreme volatility in commodity prices, few offer a forecast of prices for next year. That said, before planting the price of a new rice crop is likely to remain at a level that prevents a big shift from rice to soybeans next year. More information on landing intentions will be released on March 31 in a report on promising USDA landings.

Introductory costs

Higher introduction costs will be a major factor in landing decisions in 2022. Compared to a year ago, variable costs for the conventional hybrid rice production system rose by almost $ 230 per acre, or 34%. This cost increase is based on budgets published by the University of Arkansas in early December 2021.

The sharp increase in production costs was mainly due to fertilizers and fuel. Over the past year, many chemicals for crops have also risen in price. Assuming an average yield of 190 bushels per hectare, rice prices should rise by about $ 1.20 a bushel to maintain the same profits as in 2021.

Rice prices still need to work to offset rising resource costs. However, soybean competitiveness may increase by reducing nitrogen costs if recent trends continue. Since mid-November, the price of urea barges in the Persian Gulf has fallen by more than $ 220 per tonne. This is obviously great news for growers who have stayed away and expected lower fertilizer prices.

Source: USDA, Economic Research Service.

From conversations with producers and suppliers in the Middle South, it is clear that the decline in prices for urea barges in the Persian Gulf is carried over to the level of retail trade. By mid-late January, urea prepayments of about $ 675 per tonne had been registered in some areas, well below the 2021 budget.

Nitrogen is applied to rice fields in the form of urea, which is sprayed on this field in Washington County, Mississippi in 2016. (Photo by MSU Extension Service / Lee Atwill)

In the University of Arkansas ’crop budgets for 2022, the average urea price of $ 850 per tonne is used in the rice budgets published in early December. Reducing the cost of urea to $ 675 per ton reduces fertilizer costs by nearly $ 29 per acre. If urea prices remain well below the high at the end of 2021, this could affect planting decisions, especially for rice, corn and cotton, which have been most affected by the increase in fertilizer prices over the past year.

Finally, keep in mind that current fall rates on rice and soybeans are well above long-term averages. Prior to harvesting, hedging part of the 2022 production seems justified, especially if some material purchases have already been made. At a time when commodity prices are historically high, the responsibility for managing price risks rests entirely with the manufacturer.

Since the Price Loss Compensation Program (PLC) was launched in 2014, the reference price of $ 14 per flower for long grain rice has exceeded the average producer price for the season in each marketing year. It seems that this band could be broken in the 2022/23 marketing year.

As commodity and raw material prices fluctuate near historical highs, make the necessary changes to crop budgets and marketing plans. Before you return to the field this spring, relieve stress by defining profitable price levels and a marketing strategy that protects your farm business.

H. Scott Stiles has been an Extension Ag economist at the University of Arkansas for 22 years.

https://www.ricefarming.com/departments/cover-story/rice-outlook/ Rice Outlook – Rice Farming

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