There were many events that have unfolded in the rice industry over the past week, not least being the climb in the futures prices. Export sales and volume continues to grow, but the cash markets have yet to respond. Asia seems to be getting a bit stronger and while it has not quite reached full consolidation, is a step in the right direction.

The export sales report for the week put net sales up by about 8% from last week’s 78,600 MT at 84,900 MT. This is the fourth consecutive week of increased sales. Primary buyers for the week were Colombia with 17,400 MT of paddy, Canada with 14,400 MT of long grain milled, Japan with 13,300 MT of medium grain milled, Nicaragua with 11,600 MT of paddy, and Mexico with 7,800 MT of mostly long grain rough. Vessel loadings also increased this week by about 36% from last week’s 60,100 MT to 82,000 MT. Main destinations were 26,700 MT to Japan, 20,200 MT to Mexico, 7,500 MT to Nicaragua, 6,000 MT to El Salvador, and 5,600 MT to the United Kingdom.

The world market price estimate from USDA was again unchanged for the week. The prevailing prices by class are $12.69 per hundredweight for long grain rough and $12.75 per hundredweight for medium/short grain.

There have been no significant changes in the cash market over the past week as there has been no movement of significance to prompt producer sales at the current price levels. Bids in Texas are holding at the $11.00 per hundredweight level ($4.50 premiums), while Southern Louisiana has remained at around $12.50 per hundredweight ($20.16 per barrel. The Delta remains unchanged at $12.00 per hundredweight ($5.40 per bushel) farm basis as well. Virtually no trading has been reported in any of the areas.

In Asia, the market continues to consolidate and strengthen due in part to a government-imposed ban on export sales in Vietnam and the high levels of producer supports in Thailand. Current prices are around $590 per MT for Thai 100%B and $450 per MT for Vietnamese 5% broken. It is still unclear as to what the final effect of the Vietnamese policy changes will have on the marketplace since a) the Vietnamese has governmental agencies that could operate outside the ban and b) the ability of other entities to work around the ban is as of yet undetermined. Much more will be clear after the closing of the upcoming Iraqi tender.

The futures market caught an upswing this week on stronger trading and some fundamental movements. It is still too early to tell if the market has “bottomed out” but another week of gains could help confirm some of these questions. In the nearby March ’09 contract, Monday saw the market open at $11.95 per hundredweight and climb by $0.145 to close at $12.08 per hundredweight. Tuesday was a battle between the bulls and bears with no apparent victor as the market opened and closed at $12.00 per hundredweight, but on Wednesday, the bulls came out full force and brought the market back up by $0.475 from its open at $11.865 to close at $12.34. On Thursday the market backed off a bit with a $0.175 fall from its open at $$12.49 per hundredweight, while on Friday the market rally again to climb and close at $12.45 per hundredweight. The average daily volume for the week was 1,128.2 contracts on a weekly range of $0.615 per hundredweight.

Another week has passed without any significant price changes in the rice world. Every portion of the industry seems to be holding its breath waiting for the market to do SOMETHING. From a buyer’s perspective it is advantageous to make sure that the market will not fall more. High food costs coupled with the economic downturn make this type of risk management even more of a priority than in the past. Producers on the other hand are faced with an expensive crop already in the bins and can generally not afford the losses incurred by selling at these prices. In other words we are at an industry stalemate until something breaks loose. Fortunately, there is some good news on the horizon. Last week we mentioned the Vietnamese export ban, which is questionable in nature but fundamentally is bullish for the market. The fact that they even consider implementing this type of export control suggests that they do not have the supply to fill all the orders at current prices. This is not to say that more rice would not be found to export if the prices doubled, but does indicate that these levels are not sustainable. For U.S. producers the biggest news in the market is the potential relaxing of the regulations toward Cuba. This comes in the form of the $400 Billion Omnibus Appropriations bill that just passed the House and is headed to the Senate for approval. To keep things in perspective, this bill WILL NOT remove the embargo but will help remove some of the restrictions implemented by the Bush Administration and also help ease travel restrictions for certain groups to that country. While not a full revocation this is definitely a step in the right direction to help open an 800,000 plus MT market for rice ninety miles from our coastline. Other news in the marketplace is the upcoming Iraqi tender for this weekend which may or may not generate U.S. sales, and also the widespread drought affecting the global rice producing regions that we discussed in last week’s report. These are definitely all powerful bullish factors but their ultimate effect remains to be seen. On a more somber note for U.S. producers, the Obama Administration has suggested that in its efforts to trim the federal budget deficit and curb spending, that the farm payments MAY be brought to the chopping block. For many producers already struggling with explosive risk, this would be a harsh blow to all segments of the agriculture industry. It is important to remember that the current Farm Bill was crafted under pay-as-you-go (or PayGo) rules and therefore did not add to the federal deficit. Moving on to market news, the continued surge in export sales comes at a very welcome time when the market needs all the offshore demand it can get. As we have mentioned in the past, most big buyers are purchasing hand-to-mouth at the moment and are waiting for some confirmation on price direction. A positive factor in the export figures is the continued purchase of U.S. rice by Colombia. Recently they issued a tender for 75,000 MT which was filled, and sources in country indicate that they could import as much as 150,000 MT during 2009. This non-traditional market and others (i.e. Venezuela) are helping to provide some much needed liquidity and demand at this time. Cash markets are in much the same situation except that there is not much purchasing going on at all. Growers and buyers alike have been watching the futures market fall and the compromise needed to extract rice from grower hands has not materialized quite yet. Asian markets have continued to consolidate which is necessary before they can strengthen again so this could be considered to be a positive thing. The real moves will happen later in the year, but whether they will be significantly up or significantly down remains to be seen. Given the status of the market, we would tend to lean towards the former. The futures market continues to struggle as can be seen by the decreased volume and open interest. This arena must reconcile itself with the cash markets before it again becomes the viable risk management tool it was intended to be. The market climb over this past week is positive, but it is still too early to tell if this is a market turnaround or just another hiccup. Regardless it is highly inadvisable to utilize this as a tool to manage risk without first talking to your local marketing specialist or professional. The lessons learned from not doing so could be VERY expensive. Fundamentally the market is still strong and more time is needed before it will break loose. We remain optimistic that some indication should be apparent in the next two to three months.