Niño takes toll on US rice farmers – and points to even
Weather has caused planting delays in
the southern states and while the price hike is limited
to the US, experts wonder if parts of Asia will be next
Blame El Niño. The weather phenomenon is causing havoc
for US rice farmers and a sharp price spike in the world’s
most important staple food may foreshadow possibly higher
prices in Asia in the coming months.
While other commodities have hit recent lows, US rice
futures prices are up nearly 40%, to about $12.90 per
hundredweight, their highest level since August 2014.
In sharp contrast, soybean and cotton prices are at
their lowest level since early 2009, while sugar prices
are just off their lowest levels since 2008. And matters
are likely to get worse.
The latest El Niño pattern is cheering some in drought-ridden
California where it promises some much needed rain and
snow. But it caused planting delays this spring in the
Mississippi Delta – Arkansas, Missisissipi and Louisiana
– and Texas, the main US rice-growing regions. During
the growing season, perpetually cloudy days and warm
nights, caused by another weather system, created the
worst conditions for rice production, said Shawn Hackett,
president of Hackett Financial Advisors, an agricultural
advisory firm. He noted harvests in Arkansas and Texas
are likely to be about 15 to 20% below average. “The
crop is an unmitigated disaster,” he said.
So far the price rally is limited to US rice prices,
as Asian prices are still reflecting a large overhang
in supplies, largely because of the former Thai government
stockpiling rice – as much as a three-year supply, said
Jack Scoville, vice-president at Price Futures Group,
under a vote-buying scheme. All that rice caused prices
to crater, so in the past few years farmers haven’t
planted as much. Demand, though hasn’t changed, and
a lot of the stocks that were built up are quickly vanishing.
And El Niño made its mark in south-east Asia, too,
causing harvest shortfalls because of weather extremes
such as floods in Burma and droughts in Thailand. Earlier
this month the US Department of Agriculture reduced
its forecast for global rice production because of lower
harvests in several key countries. This is the first
year-to-year decrease in global rice production since
2009-10, they said.
The world is quickly eating through big supplies created
in the past few years. USDA’s forecast for the 2015-16
growing season estimates globally there will be 90.85m
tonnes (metric tons) of rice available after accounting
for supply and demand. While that seems plentiful, it’s
down from 101.8m tonnes last year and 107.4m tonnes
the year before. Bill Nelson, senior economist at Doane
Advisory Service, said the average global inventory
over the past 25 to 30 years is typically 100m tonnes
or more, and that the last time the world had such small
reserves was in 2007, when prices eventually hit record
El Niño is expected to strengthen and peak later this
year, but the impact of the weather anomaly could still
be felt for four or five months afterward, possibly
as late as early February, said Dale Molher, expert
senior meteorologist at Accuweather.com
That could spell trouble for farmers in south-east
Asian countries such as Thailand, Vietnam, Malaysia
and Indonesia who will face these ongoing dry conditions
as they prepare to plant again soon. Because of less
rain earlier in the year, reservoir levels are down,
meaning less water to irrigate crops, Hackett said.
As it is, the Thai government is restricting how much
farmers can plant because of the drought.
The low Asian rice prices may not last as the combination
of this summer’s harvest shortfalls, farmers possibly
planting less and forecasts for detrimental weather
will have future ramifications.
“El Niño is still going to be a major force as we move
forward. Most of the effects are really yet to come.
Production will be impacted, but no one knows how much,”
Currently, the price for high-quality Thai rice, a
global benchmark, is around $350 a tonne. Comparatively,
the US price, calculated in tonne, is $550. Normally
US and Thai prices have only about a $60 to $70 difference,
Hackett and Scoville said there are signs Asian buyers
are concerned about future supply which may boost prices
there. The Philippines is importing rice because of
harvest shortfalls, and Indonesia may import rice for
the same reason, they said. In August, Burma put an
export ban in place because of low supplies.
“So far the Asian price has been stable to weak because
of the Thai [situation] and India had a pretty good
crop. But I think the worm is going to turn over there
… sooner than later,” Scoville said, who said prices
could start to move by the end of the year.
Hackett said Thai prices could rise to $500 or $600
a tonne, perhaps by spring.
It is important to keep an eye out on rice prices because
rice is one of the three main cereal crops, along with
wheat and corn. Those three crops make up two-thirds
of what the world eats, according to the FAO. How much
of an impact rising rice prices will have on consumers
is unknown. Luckily for eaters, no one is forecasting
a return to the sharply higher price seen in 2007 and
2008 when riots broke out over record high rice prices.
Back then, supplies of all staple food crops such as
rice, wheat and corn were low and prices high, so there
was no alternative for buyers.
But we’re not likely to see riots this time around,
as countries like the Philippines are seeking to add
to their wares. This year, Nelson said, although rice
supplies are tight, wheat supplies are at record levels
and prices are low, so he said people most affected
by high prices could gravitate to buying wheat-based
foods. Still, high rice prices can affect the poorest
of the poor.
The global economic situation now is also different
than 2007-08, Hackett said.
“We’re not necessarily going to see that kind of a
wild, unbridled spike … because we’re dealing with a
deflationary commodity environment. But having said
that, higher prices will be seen in medium term,” he