You are on page 1of 1

Hidden Treasure*

oday, as I write this column, the United States is celebrating its Memorial Day. Looking back at the history of the U.S., as well as of the many nations around the world, we are reminded of the sacrifices that the generations before us have made so that we could be where we are today. We pay our deepest respect and gratitude to our forefathers, whose sacrifices form the cornerstones of our present and future. It is striking how often we forget our past, when it holds the lessons we need to learn for the challenges of tomorrow. In a snapshot of the rice market, there appear to be as many questions as answers, especially considering the many events happening around the world. Certainly, the unpredictable weather is a major concern. My home state, California, alone, has been rocked by several tornadoes. On top of that, some hail fell in late May. California has been uncharacteristically cold and rains have delayed the planting seasoneffectively putting yields for the current season into question. As Latin America produces a bumper crop, U.S. production is, as stated earlier, beleaguered by the odd weather (and southern rice producers deal with the double whammy of an already decreasing area and a season of unexpectedly foul weather). The nature of procurement has also changed because of the political turmoil in Africa and the Middle East, reduced purchases from the Philippines, and the return of buying from Bangladesh and Indonesiaand their consequent impact on global rice trade. One also has to wonder about the extent of the drought and the water concerns in China and their possible repercussions on Chinas buying. Furthermore, the Indian monsoon also remains a critical factor in the market as the Indian government continues to ban wheat and nonbasmati rice exports. Russia, on the contrary, a major grain concern last year because of the drought that forced the government to ban wheat exports, plans to return to the market on 1 July. Looking at the many unknowns and the factors dependent on political concerns, it seems that almost anything can happen, especially when politics are involved. Now, at the end of the first half of 2011, total exports from the five major players are 15% higher than in the same period last year. This is a far shot from the talks that say there is no demand. Apparently, demand is plenty. The two main drivers of this years exports are Thailand (a +50% increase compared with that of 2010, and it looks well on pace to achieve its target of 10 million tons) and Vietnam (+20% ahead of last year). Of the Big 5, the U.S. is the biggest concern, as the 2010-11 crop (that has been plagued with quality problems) has faced many problems and even the 2011-12 crop is expected to be lower. Hence, tightness in the U.S. supply is expected to have an impact, especially on markets that traditionally buy U.S. rice. Again, rationalizing the decrease in U.S. crop production brings us back to the weather. The unseasonable rains have pushed planting well past the optimal planting dates in key growing states, such as Arkansas and Missouri. Because of thisnot to mention the more promising returnssome growers are now considering shifting to soybeans when possible, thus causing a drop in rice area in the U.S. The re-emergence of Brazils rice production in 2011 (after untimely floods destroyed as much

as 20% of Brazils 2010 harvest) and the resulting export availability from the Southern Common Market (MERCOSUR) region, however, help offset the reduced supply in the U.S. We may still be underestimating the extent of reductions in the U.S. rice crop. Some players predict a shortfall of up to 40%. A 30% reduction would already be a huge loss. The shift away from rice is very real and it is easy to see from the graph below that global buyers should be thinking just the opposite. The spread from wheat/corn (maize) to rice is at the same level as in 2007, right before prices significantly increased in 2008, and this will likely affect buyingif it has not yet done soas the 15% increase in trade from the five major exporters shows. In fact, if you just showed the graph and a price chart without any description indicating what commodity this is, it would be very difficult for an analyst not to predict that the rice price would move higher, or that wheat/ corn would go lower. The spread is an easy win and, surely, like in 2007, this is one of those red flags in the market, which signals that demand (and, to some extent, supply) should really shift. As a last note, Id like to share that, as of this writing, we are leaving for Panama in the first week of June for the TRT Rice Americas Conference. We expect this event to be a phenomenal networking meeting in the region. I would also like to take this opportunity to announce the next World Rice Conference, which will be held on 19-21 October 2011 at the Sheraton Saigon Hotel & Towers, Ho Chi Minh City, Vietnam. Although the conference is still several months away, it is already promising to be an important reunion of global rice industry players. Finally, I want to thank Thailands rice industry for graciously inviting me as a guest speaker in June at the Thailand Rice Convention, which only happens every 2 years. To simply attend this meeting is already an honor, much more to be invited as a speaker to share my thoughts. Again, I express my sincere gratitude and appreciation.

Jeremy Zwinger Publisher

Date

* The opinions expressed here are those of the author and doRicenecessarily reflect the views of the International Rice Research Institute. not Today July-September 2011

43

You might also like