Photo by Fajruddin Mudzakkir on Unsplash
 

Rice is perhaps the only grain commodity that has been trending down, unlike most of its commodity group peers. YTD, Rough Rice front month futures has declined over 10% from $18 ⅓ per cwt to today’s $16 ½ per cwt. Is this downtrend justified based on rice metrics and fundamentals?

Among the top three most consumed grains in the world, rice is the primary food staple for more than half of the world’s population. According to the United Nations Food and Agriculture Organization, global rice consumption is projected to rise in the coming decade by 1.1% CAGR to throughout 2031. The majority of the increasing consumption is attributable to rising populations in Asia, plus Africa increasing per capita consumption.

But global rice output is declining, with the USDA Foreign Agricultural Service reporting the top producing countries as China and India, which together produce more than half of the world’s rough rice, are also seeing annual declines in the new crop year. India’s current crop is projected to be cut down by an uneven monsoon, while China shifts some focus to other crops.

The U.S. domestic production has also been slowly declining; from 227.5 million (hundredweight, 100 pounds) cwt in 2020/21, to 191.8 in 2021/22 to a projected 164.3 in 2022/23 according to the USDA World Agricultural Supply and Demand Estimates. Declines in both the new and old crops are attributable primarily to less planted acreage, with yield decreasing only slightly. The United States is a net exporter of rice, exporting around 3.3 million MT in 2021 while importing less than 1 million MT.

Finally, however, in this crop season, the U.S. rice acres are seen up 16% from 2022 at 2.58 million, trying to meet demand expectations, including a 9% increase for long grain rice to 1.96 million acres. For example, Arkansas reported rice plantings at 1.301 million acres, 18% higher than in 2022.

Another reason why the rice pricing pattern remains weak is India’s governmental subsidies. Rice farmers in the U.S. and around the world have been forced to sell their crops at a lower cost and with less support for their own rural communities as a result of India's measures to stimulate rice production. Artificially low prices for Indian rice are affecting continents, with India on track to break its own export record again this year.

So, on one hand, we see a big tally of multiyear subpar rice plantings against moderately growing demand, but, on the other, this year’s increase of the U.S. rice acreage along with the perseverance of old story of government subsidies will unlikely point to any signs of price reversal for this world’s second most consumed grain. 
 

Summary:

Actually, India has a good point to keep rice subsidies intact despite the WTO’s case. In response to the claim, India defended its minimum support price program for procuring domestic food grain, saying it not only ensured food security but also kept global food prices from surging in the backdrop of the geopolitical instability in Eastern Europe.

However, the legitimacy of India’s response certainly won’t help rice prices to recover. So, in the meantime, despite sharply bullish outlooks for wheat and soybeans, rice price projections will remain muted up until at least the end of 2023.

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