Drought Pushes California Rice Acreage to 39-Year Low

The USDA forecast that Californian rice plantings will fall to just 348,000 acres in 2022, representing a steep decline from 407,000 acres planted last year and 517,000 acres in 2020. California’s rice acreage will be the lowest it’s been since the 1983-84 growing season.  Drought-related water restrictions continue to hamper agriculture in the state.

Corn Crop

Drought impact on US Rice

Shasta Lake has hit critical low water levels which is prompting significant restrictions in federal Central Valley Project water, which are expected to idle nearly 400,000 acres of farmland across the Sacramento Valley.

For farmers in the Glenn Colusa Irrigation District (GCID), the largest water district in the Sacramento Valley, irrigation deliveries may be less than 20% of what growers have historically received from Shasta Lake via the Sacramento River. For a district that saw 100,000 acres planted to rice in 2019, early estimates suggest as little as 875 acres of rice will be planted across the district this season.

A water-saving plan unveiled in March by California and federal officials was expected to result in about 35,000 acres of Central Valley rice ground being left idle. The plan is part of a larger agreement signed March 29 that send an extra 824,000 acre-feet of fresh water through the Sacramento-San Joaquin River Delta to protect water quality, according to The Associated Press. An acre-foot is enough water to serve an average household for a year.

Rice Futures Highlights

Rice futures were trading above the $17-per-hundredweight mark. Prices have been supported by a combination of strong demand in various Asian exporters, purchases by Near Eastern and Chinese buyers, and weather setbacks in America, highlighted by the drought in California

Global Outlook

Rice has become a cheap alternative to wheat and corn, especially in China, the world’s largest feed market, after Russia’s invasion of Ukraine stopped grain shipments from these two countries.

The latest WASDE report showed the global rice outlook for 2022/23 is for record production and consumption. More significant output is expected from China, India, and Bangladesh, the world’s three largest producers, while most of the increase in demand will come from India and China.

Water shortages in Pakistan are having a large impact on rice growing provinces, such as Punjab and Sindh, which will likely hinder output from this region. However, there is no sign that India will reduce their production or exports, further depressing export prices for rice worldwide.

The war has also caused soaring fertilizer costs affecting has forced farmers across Asia to reduce their use, which will lead to lower crop yields and higher rice prices if demand and supply factors remain.

In Myanmar, the government surprisingly decided to modify the rate of the kyat to the detriment of exporters. This forex restriction has ultimately made the country less competitive in the global market restricting them to border trade only. Myanmar farmers cultivated fewer acres due to poorer economics; higher fuel costs, fertilizer, and chemical costs are all factors that have driven rice prices higher.

In Thailand, prices have remained around $445pmt, and they are home to Iraq’s purchases for the time being. Vietnam is cheaper, in the $415-$420pmt range, keeping busy fulfilling Filipino demand.

Even with these prices from Thailand and Vietnam, India prices remain at a discount of at least $65pmt in comparison. The subsidies given to farmers to produce the record quantities and the subsequent exports make it extremely difficult for other origins to be competitive.

US Rice Exports

Export demand for U.S. long grain rice is down only 2.6% year to date.

The weekly USDA Export Sales report shows net sales of 13,100 MT this week, down 55% from the previous week and 57% from the prior 4-week average.

Increases primarily for Canada (4,000 MT), Honduras (3,700 MT), Guatemala (3,000 MT), and Mexico (2,000 MT), were offset by reductions for Haiti (300 MT). Exports of 24,200 MT were down 47% from the previous week and 53% from the prior 4-week average. The destinations were primarily to Haiti (13,200 MT), Mexico (3,300 MT), Canada (3,300 MT), South Korea (2,200 MT), and Honduras (1,000 MT).

Arkansas rice plantings have caught up after poor weather that severely delayed planting, likely to just exceed 1 million acres of long and medium grain combined in the state.

Mexico has declared an emergency because of the increasing food costs. The Mexican government announced the removal of most import duties on food supplies. This includes paddy rice of any origin for several CAFTA countries where tariffs are going to zero in order to suppress food inflation. This will further erode the U.S. market share because of America’s higher prices. In the case of Mexico, the duty-free import measure for rice is only on rough rice and milled rice was not included in the new policy.

“Farmers are in a race against the clock to get their crops in the ground this week, with planting of corn, soybeans and wheat well behind their usual pace. Wet and cool temperatures in key parts of the Midwest have delayed farmers’ planting plans, leaving them days to get crops in the ground before they start to lose out on a bigger harvest. If they don’t, some grain traders say that already high prices for agricultural commodities could rise even more… The U.S. Department of Agriculture said 22% of corn was planted, compared with 50% for the previous-five-year average. For soybeans, 12% was planted, compared with the previous-five-year average of 24%, and 27% of spring wheat was in the ground compared with a typical 47%…”

May 11 – Wall Street Journal (Patrick Thomas and and Kurk Maltais):

Commodity Round Up

  • Bloomberg Commodities Index declined 1.6% (up 29.4% y-t-d).
  • Spot Gold fell 3.8% to $1,812 (down 1.0%).
  • Silver sank 5.6% to $21.11 (down 9.4%).
  • WTI crude increased 72 cents to $110.49 (up 69%).
  • Gasoline jumped 5.3% (up 78%),
  • Natural Gas fell 4.7% (up 105%).
  • Copper dropped 2.2% (down 7%).
  • Wheat surged 6.2% (up 53%),
  • Corn slipped 0.4% (up 32%).
  • Bitcoin sank $6,300, or 17.4%, this week to $29,800 (down 36%).

Source: TC, USDA, Farm Progress, AgFax

From The TradersCommunity Research Desk