Rice to lead next commodity bull move

 

U.S. Rice exports

10/18/2012

113,055 mt

10/25/2012

109,604 mt

11/01/2012

107,014 mt

11/08/2012

77,717 mt

11/15/2012

100,714 mt

Average

101,621 mt

Average last year during same time

64,707 mt

% increase Year over Year

+57%

Should U.S. exports continue at this torrid pace, which is almost certain if current low prices prevail and rice production remains depressed in South America, cumulative exports would rise 25% to 30% above last year’s levels. There is not enough rice available in the U.S. to satiate this kind of demand. Given the U.S.  rice supplies available, an export growth target from last year can only achieve about 5% to 8% growth, and even that would take U.S. supplies to bare minimum pipeline levels. The only way to slow down exports is to ration export demand with substantially higher prices.

When looking at South American rice production potential, the news for the next crop cycle is not looking good. Acreage losses to corn and soybeans have been greater than originally anticipated and erratic weather and lack of water in southern Brazil are likely to crimp yield potential. The bottom line is that Brazil is likely looking at rice production at or below this past year, which already is insufficient to meet burgeoning demand.

It is too late for South America and Brazil to avoid another year of insufficient rice supplies. It is not too late for the next rice crop cycle in the United States. The only way the Western Hemisphere rice supply crisis can avoid getting worse is to encourage a dramatic increase in U.S. rice acres for the next crop cycle. In order to do that, rice prices need to gain dramatically vs. corn and soybeans prices between now and February 2013. As illustrated in the charts above, that process already has begun, but it has a long way to go to reach fruition.

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