Global Rice Market – Asia

The Asian markets impacting our rice market

At Firstgrain we give a narrative of the market each week. In addition we watch various markets and their trends. You could say that all the global influences we watch key off of the vantage point of the regional rough rice markets in the Southern US. Unlike many rice services we start and end with the long grain prices in the Southern US, the Gulf Coast, and the Mississippi river Delta. In our hedging recommendations we key off of the CMEGroup rough rice futures.

You can see from the five-year average in the image above that this season is at the long-term five-year average (the brown line). Of the last four marketing years, the price was at or above the long-term average three of the last four seasons. The rising seasonal shows that the cost of carry elevates the market price as the supplies get sold out. What is also evident is the growing volatility towards the end of the marketing year. The longer you wait to price your rice, the greater the uncertainty of what you will sell it for.

There is a strong price seasonality to Asian rice origins during the November-December period. Prices tend to rise after this time frame. But in the southern part of the Western Hemisphere, prices tend to average sideways to lower into the spring period. This makes sense because the main crop in South America comes off in February and March.

The seasonal on the right measures each market relative to the Thai 5% rice price, like India, Thailand is a major rice exporter and has been so for centuries; and sets the tone for prices in Asia. Interestingly, the price in India tends to move in a downward direction to the Thai price into the Feb to April time frame. These relationships of seasonal spreads would become more interesting if the CMEGroup manages to get its Thai 5% futures contract to trade.

The Asian prices have traded mostly below the $425 per MT level over the last five years. In contrast the prices in the Western Hemisphere have trade well above the $425 per MT. That level is indicated by the horizonal gold line on each price chart. The disparity in price levels between Asia and the Americas is due more to the level of rice subsidies than cost of production alone or efficiency of rice farming.
A large share of US rice supplies are fed by imports from Asia and other foreign origins, particularly aromatic or fragrant rices such as basmati and jasmine rices. These rices, unlike white milled 5% rice, have traded at considerable premiums. The overall depression in world rice prices have caused Thai Jasmine and Pakistani basmati, in particular, to trade lower.
This fragrant or aromatic market in rice has driven domestic demand for rice in the US and caused significant growth in rice imports to the US. For the last two decades there has been steady growth in rice imports to the US. A small percentage of this rice is now grown and milled in the US. The unknown is whether varieties in the US will meet the needs of US consumers, many of whom are of Asian origin. Because of the significant premium of aromatics to ordinary rice both, imported and domestic, it is not clear whether this rice can be priced off of Chicago rough rice futures. Note the considerable premium of fragrant imports to the value of ordinary imported white milled rice or the US white milled export offer. If a market develops for US grown aromatics, now about 5% of this market in the South and California, some kind of premium could offset the lower field yields of these varieties. As the above chart suggests, the planted rice acreage to serve this US rice demand could easily double by 2060.
The export offer for these rices out of Asia have been quite volatile over the last five years. Notice how offers from Thai jasmine and Paki basmati seem to be responding to similar market conditions while Vietnamese jasmine has remained at a low price but has not been a preferred origin in the jasmine market in the US. Indian basmati rice continues to command the highest premiums in the world market now. These relationships will need more analysis of what drives them over time, if US farmers and millers become more involved in supplying these markets in the years ahead.