Arkansas Rice Growers Association

Over the past year, the rice industry has been buffeted by crisis after crisis—from adventitious presence to acreage loss and yet producers have been holding on to their crops as tightly as possible. In spite of all of these occurrences, the market price has slowly but surely continued to climb and producers have been watching. Fortunately, they are most likely right. Fundamentally, it all makes sense if one takes a look at the global market. From a supply standpoint, global stocks have been falling for the past several years, while increases in population have increased demand. Much of the arable land is being given over to alternative crops for a multitude of reasons (biofuel, market factors, as well as rising production costs to name a few) and the end result is less production. All of these factors put the rice industry at a pivotal point in its history—a point where the market is changing from a buyers to a sellers market. In the past, due to government price supports and global trading policies, rice was subsidized so heavily that there was simply too much of it. Mills and governments could get it at very cheap prices that became the norm for the last 50 years. Fortunately for rice farmers, markets DO work. During the past several years, many rice acres across the world have been moved into other crops – primarily corn or soybeans to meet bio-fuel needs. In response, the rice stocks that had been piling up for years began to slowly diminish. Economics 101 tells us that if something is wanted and can not be had, the price goes up accordingly. The rice market is no different. The prices of other staple commodities have risen, which has attracted producers to shift their acreage, is also making these commodities too expensive for many of the poorer areas of the world to consume – leaving a tremendous opportunity for rice. Back to Econ 101, this creates MORE demand and LESS supply which will force the price even higher. Couple all of these factors with the weather problems in the Asian countries, as well as the transition of many areas from agriculture to urbanization, and the effects can be multiplied. Most producers can see this happening and most analysts agree that the rice currently in milled storage is as cheap as it will be in the foreseeable future. It is simply a matter of time before buyers must react to the needs of their consumers and adjust their price accordingly. Some producers will have to sell some crop to cover near term costs and make bin space for new crop. None of them are going to sell any more than they have to. Rising production costs are forcing the market to raise the price of rice and it will come to the point, sooner or later, when the buyers will no longer be able to force these costs back down to the farmer. At some point, the mills will stop, people will get hungry, and the purchasers will have to come to the table on the seller’s terms. In Texas and Louisiana, it is already beginning to happen. Sellers simply must have a higher price to stay in business and are holding out until they get them. The rest of the region will likely follow suit as the new crop is harvested and their short term obligations are met. The game has started and this time, producers hold all of the cards.

Excerpt from The Rice Advocate Volume 4, Issue 36 - August 10, 2007