In this week's highlights: Crude prices fluctuate amid global uncertainty; anxiety continues to...
China's semi-finished steel exports and imports are expected to decline in the upcoming months,...
If you were to drive through the western half of the Sacramento Valley, you would see a lot of empty...
Californian market weighs up rice imports as historically small crop looms
Market Movers Asia, June 20-24: Energy crisis ripples through Asia-Pacific region
China semi-finished steel exports, imports set to decline in upcoming months: sources
Commodity Tracker: 5 charts to watch this week
Californian 2022 crop likely to be almost half a 'normal' year
Australia poised to send medium grain to California
State's exporters deciding how much to sell to Japan in 2022-23
If you were to drive through the western half of the Sacramento Valley, you would see a lot of empty rice fields.
Receive daily email alerts, subscriber notes & personalize your experience.
You may think that you are about to encounter one as you approach a patch of green, but more likely than not it will turn out to be a weed-infested rice field. With red diesel prices well in excess of $5/gal, farmers are reluctant to maintain their fields unless they are being actively worked on.
Possibly the best illustration of this is Colusa County. In a good year, the region typically farms the largest area of rice in the state at around 150,000 acres (60,703 hectares). However, farmers are estimated to have planted on only 7,500 acres (3,035 hectares) this year, hampered by what many growers view as a water allocation structure in the state which is not fit for purpose.
Colusa's case is representative of most of the western half of the valley, with sharp irrigation water curbs on the back of the abnormally low levels of the Lake Shasta reservoir limiting planting potential. On the eastern side of the valley, though, most fields are fed from the Lake Oroville reservoir, which is in a far healthier position. This provides those travelling between the two halves of the valley with a stark contrast.
Californians would typically agree that a "normal" planted area would be around 450,000 acres (182,109 hectares). While there is still some discrepancy about 2022 area, sources typically believe that it will not exceed 250,000 acres (101,171 hectares).
In turn, this has led to historically high prices in California and very real concerns that California will lose market share in many of its key export -- and even domestic -- markets. However, the outlook for the next marketing year is far from clear and the market's direction will depend on outside forces and some decisions from key movers and shakers in the industry.
Paddy prices continue to spike
One possibility is that historically high prices in California continue to rise. Since the start of 2022, Platts' assessment of US #1 Paddy, 58/69 Yield has climbed by $7/cwt ($154/mt) to $30/cwt over loan ($824/mt) ex-works, according to data from S&P Global Commodity Insights, as farmers pushed for higher prices in response to major planted area curbs and an already small 2021 crop.
In the minds of many farmers, $30/cwt over loan ex-works is now the baseline for the 2022 crop. While some farmers believe -- and millers hope -- that pricing cannot go much higher, others are much more bullish. "The sky's the limit," one such farmer told S&P Global, not ruling out that new crop paddy pricing could touch $40-$50/cwt over loan ($1,037-$1,258/mt) ex-works.
However, this projection is based on two core assumptions -- that domestic supplies will not be enough to satisfy demand until the 2023 crop is harvested from September and that imports are not able to make up the supply shortfall due to freight costs and other logistical hurdles.
In a normal year, the domestic market represents around 50% of crop consumption. As this year's crop is likely to be slightly over half the size of a normal crop, it could be that domestic demand is largely satisfied by domestic production, offsetting major price rises. However, this is dependent on two unknown factors: how much mills will export and how much Japonica rice they or other market participants will import.
Calrose certainly has a strong brand identity in the US in general and California in particular, but this year will be a major test of price elasticity.
Domestic prices of US #1, 4% broken white rice are now reported at around $60/cwt ($1,323/mt) ex-works, with mills steadily upping their prices in recent months and domestic buyers generally swallowing the increases. But with milled rice prices still needing to catch up with paddy price increases, it is unclear if this will continue.
One major question regarding imports is "where would they be sourced from?" There are not many obvious contenders to replicate Calrose. While some European rice varieties could do so, the continent is encountering its own drought problems and so major imports are unlikely. Vietnam and China could also supply, but many importers would likely baulk at the quality.
Even if a mill did decide to import -- potentially alienating Californian farmers in the process -- there are further issues. Container freight prices remain exorbitantly high and container availability on the US West Coast has been notoriously low for many months. On top of this, imported rice would likely need to be re-bagged and potentially re-processed in Californian facilities before going on the shelves. Taking all that into account, one source voiced the view of many when they said that imports "may not be that profitable." A major mill expressed the view that it is not worth the headache unless absolutely necessary.
It is possible that Californian mills could utilize Southern medium grain, but the idea of blending Southern medium grain and Calrose to produce a combined US medium grain product is a taboo topic. On top of this, 2022 Southern medium grain acreage remains unusually small, with sellers in the South unlikely to be able to supply significant additional volumes to California.
Sources typically agree that the one likely supplier of major volumes of medium grain to California and the US in general is Australia via the country's only major marketer, SunRice. In addition to Australian 2022 paddy production being estimated by SunRice as in excess of 623,000 mt -- making it the largest crop in at least five years -- SunRice benefits from already having a milling presence in California via its subsidiary, SunFoods. Anecdotally, increasing volumes of Australian rice have been making their way to Hawaii and sources typically view it as a matter of time before they reach the mainland in significant volumes -- potentially via bulk shipment.
However, this has difficulties. Bulk grain sites suitable for unloading in northern California are very limited, with minimal experience of the process available in the Californian rice industry. One source also stated the view that Australia may choose not to export significant volumes this year and instead build stocks for when the La Nina weather phenomenon abates, an El Nino phenomenon arrives and Australian production drops significantly once again.
As of yet, SunRice is yet to fully reveal its export strategy, also restraining itself from offering on recent Australia-specific East Asian tender lots. While at least minor Australian sales to the US are reported to be happening, only time will tell how much rice Australia wishes to offload on the US and California specifically.
The other main determining factor for the direction of Californian prices is whether many mills choose to maintain their relationships with export markets.
Due to previously mentioned container issues on the US West Coast, most suppliers have severely curbed or totally halted their container sales to markets, such as Europe and the Middle East. One major miller questioned why they would look to export amid the hassle involved in executing when domestic buyers are ready to pay $60/cwt ex-works.
As a result of these factors, volumes exported from California via container from the 2022 crop will almost certainly be minimal.
However, the major question mark on exports is how mills will approach their two main export markets -- Japan and South Korea. Under World Trade Organization obligations, these markets take hundreds of thousands of tons of Californian rice each year -- predominantly via bulk shipment -- accounting for roughly a third of the Californian crop consumption in a normal year.
Due to the 2022 production shortfall, however, it is inevitable that the US quotas for these East Asian countries will not be fully utilized. The question now is "to what extent?" While some in the industry think that California could fulfill 50% of its Japanese quota, others believe that only a few shipments to the country will be made. In comparison, few believe that any volumes at all will be shipped to South Korea from the 2022 crop -- partially as South Korea often demands container shipment for large volumes.
One major miller with an export focus told S&P Global that they still intended to offer at least a few cargoes to Japan from the 2022 crop. A second major miller remarked that they were not intending to ship any volumes to the country.
The fear of what could happen if California does not offer in Japanese and South Korean WTO tenders is very real. In theory, it could lead Japan and South Korea to take volumes of Southern medium or even long grain rice -- if pesticide and other quality issues are overcome. Sources even fret that the US quotas in these countries could be reduced to one extent or another if quotas are not fulfilled. As these two countries take such a large chunk of the Californian crop most years, this would be of huge significance once Californian production returned to more normal levels.
In the short term, this may lead some mills -- especially those with an export focus -- to offer volumes of 2022 crop. While this would help to solidify the relationships of these key export markets, it would limit available volumes in the domestic market. In turn, this would likely lead to higher domestic paddy prices, potentially raising the prospect of large-scale imports.
However, if these export-focused mills turn to the domestic market, it is possible that this could stop any further major paddy price hikes going forward. Once Japan begins its tendering season around September, all eyes will be on whether offers from California are being submitted successfully.
New crop harvesting is not due to begin in California until the early days of September. While market activity is already starting to drop significantly, there is still a long time to go before a mill even begins to process the first kernel of 2022 crop paddy.
However, the strategies being developed now in boardrooms in California -- and potentially other rice exporting countries -- will have major and potentially long-lasting repercussions for this benchmark Japonica rice market.
To continue reading you must login or register with us.
It’s free and easy to do. Please use the button below and we will bring you back here when complete.