Rice: Market Outlook

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Tsunami Unlikely To Have Major Impacts on Global Rice Market

USDA Rice Projections, 2007-16

The global rice market remains critical to the viability of the U.S. rice industry. Despite steady expansion in domestic rice use, exports continue to account for 45 percent or more of total use of U.S. rice each year. Although accounting for less than 2 percent of global rice production, the United States is the fourth-largest rice exporting country. The United States faces stiff competition in the global market for milled rice from lower cost Asian exporters and has lost substantial market share over the past decade, primarily in Sub-Saharan Africa and parts of the Middle East. However, rapid expansion in U.S. rough rice exports—mostly to Latin America—has offset much of the decline in market share in the global milled rice market.

While annual rates of growth for domestic disappearance continue to expand, they have declined from levels achieved in the 1980s and 1990s. The slowdown in domestic growth was largely due to the popularity of protein-oriented diets among some consumers early in the 21st Century, and a shift to a Western diet by second- and third-generation Asian immigrants.

Each year, USDA updates its 10-year projection of supply and utilization for major field crops grown in the United States and major producing countries and regions, including rice (see Overview of the USDA Baseline Process for more information). The commodity projections are used to forecast farm program costs and to prepare the President's budget. One key use of the projections is as a reference from which to analyze underlying policy changes affecting U.S. agriculture. This discussion summarizes the analysis underlying the rice projections for 2007/08-2016/17. Details about the projections for the U.S. macroeconomy, other U.S. crops, U.S. livestock, the U.S. agricultural sector, and global agricultural trade can be found in the Agricultural Baseline Projections briefing room.

The 2006/07 U.S. rice market is facing tighter supplies, higher prices, and smaller exports than a year earlier. U.S. rough rice prices in 2006/07 are the highest since at least 1997/98, a result of tighter U.S. supplies and higher global rice prices. U.S. prices are also being supported by higher prices for other grains and oilseeds, as well as by high input prices, especially for fuel and fertilizer. In the global market, prices are being supported by a tightening supply situation, the effects of Thailand's rough rice intervention purchases, and a strong Baht. As of late November 2006, quoted prices for Thailand's 100-percent grade B milled rice for export were up almost 10 percent from a year earlier. This is the fifth consecutive year of rising global prices. The 5-year global bull market is largely due to declining global stocks.

Projections for U.S. Rice Supply and Use

Highlighted below are the key assumptions regarding factors driving annual levels of production, trade, disappearance, and prices for rice in the United States for 2007/08-2016/17. Projection details can be obtained from the U.S. rice supply and use table.

Supply

Several factors underlie the long-term trends in both plantings and yield growth that will determine the size of the U.S. rice crop during 2007/08-2016/17.

Rice plantings are limited by high fuel and fertilizer prices and strong returns for alternative crops. Despite rising prices for U.S. rough rice over most of the projection period, annual rice plantings are expected to remain 200,000-300,000 acres below the 2005/06 level over the next 10 years. High prices for competing crops—primarily soybeans and feed grains—plus high costs for fuel and fertilizer will keep several hundred thousand acres of former rice land out of rice production in the Delta. In addition, continued contraction of rice plantings on the Gulf Coast are likely, as this region has the highest per unit cost of production. Rice acreage on the Texas Gulf Coast has dropped sharply since the early 1980s, and is currently less than half the level planted a decade ago.

Prior to the March 2007 Clearfield 131 development (see Trace Elements of Genetically Engineered Elements Found in U.S. Long-Grain Supplies), this analysis projected U.S. rice plantings to increase in 2007/08—with a major rebound in California acreage accounting for much of the expansion. A cold wet spring sharply limited California plantings in both 2005/06 and 2006/07. U.S. rice plantings are projected to decline in 2008/09—a result of higher returns to competing crops, primarily corn and soybeans—and then slowly increase over the remainder of the projection period as rice prices and net returns increase and pull acreage back into rice. By 2016/17, U.S. rice plantings are projected to reach nearly 3.1 million acres, virtually unchanged from 2007/08, but well below the 3.53 million planted in 1999/2000.

In past years, much higher yields achieved for rice typically offset rising corn and soybean prices, limiting any contraction in rice acreage when corn and soybean prices rose. However, much higher fuel and fertilizer prices since 2005 have made rice noncompetitive with soybeans and corn in some areas of the Delta. In contrast to the South, California rice acreage is projected to remain around its 2007/08 near-record level for the remainder of the projections. There is little substitution among crops in the California rice growing area. Demand for California rice is expected to remain strong in both domestic and global markets over the next 10 years.

Rice yields are projected to reach record highs. Average U.S. rice yields are projected to increase each year of the projections, surpassing the 2004/05 record by 2008/09. Yields are projected to increase 1 percent per year through 2010/11, as the South continues to adopt new, higher-yielding long-grain varieties. U.S. yield growth is projected to slowly taper off after 2010/11, when adoption is nearly complete in the South. Yield growth projections in the latter part of the period are primarily due to better management practices in all U.S. rice growing regions.

U.S. rice farmers achieved record yields each year from 2000 to 2004, primarily due to the adoption of new, higher yielding long-grain varieties in the South. Weather problems in both California and the South—including two severe Gulf Coast hurricanes—reduced yields in 2005. Yields recovered somewhat in both regions in 2006, although a second, consecutive cold wet spring limited the California yield recovery. Over the past decade, yield growth has been slower in California than in the South, a result of several weather problems, a lack of new varieties, and environmental regulations—such as the phase-down of straw burning.

Higher yields are projected to boost annual production. Except for 2008/09, U.S. rice production is projected to increase each year of the projections, mostly due to higher yields. A higher yield and a small area expansion are expected to boost U.S. production in 2007/08. Higher returns for competing crops are projected to pull rice area and production down in 2008/09. Both rice area and production are projected to increase for the remainder of the period, with increasing yields accounting for most of rising production. By 2016/17, U.S. rice production is projected at 230.5 million hundredweight (cwt), 19 percent larger than the 2006/07 crop, but still 1 percent below the 2004/05 record.

Imports are projected to account for a growing share of domestic use. Since 1980/81, U.S. rice imports have increased almost every year and have accounted for an increasing share of domestic use. Currently, imports account for almost 15 percent of total domestic use, including the residual or unreported losses in marketing, processing, and transporting, as well as any statistical errors. Imports are projected to increase 3 percent a year over the next decade, nearly three times the pace of the projected expansion in domestic disappearance. By 2016/17, imports are projected at a record 24.1 million cwt, accounting for almost 18 percent of domestic disappearance.

The bulk of U.S. rice imports are aromatic or fragrant rices—primarily jasmine from Thailand and smaller amounts of basmati rice from India and Pakistan. Classified as long-grains, these particular high-quality Asian aromatic varieties have not been successfully grown in the United States. While these varieties were once sold mostly in Asian neighborhoods and in major coastal cities, they are now available in most urban areas and in ethnic restaurants across much of the country. U.S. plant breeders are trying to develop U.S. varieties to compete with these high-quality aromatic imports.

In addition to the aromatic varieties, since 2001/02, the United States has imported significant quantities of medium- and short-grain rice, mostly from China. Puerto Rico—the largest U.S. territory—accounts for virtually all of these purchases. Australia supplied most of this rice in 2001/02, but tight supplies took it out of this market in 2002/03. China, and to a lesser extent Egypt, have supplied this rice since 2003/04. Tight U.S. supplies of medium- and short-grain rice (grown mostly in California) and lower landed prices from competitors are behind the imports of medium-grain rice by Puerto Rico. U.S. imports of medium/short-grain rice are expected to remain at the 2006/07 record level for the remainder of the projections.

Demand

Several factors will determine the long-term demand for U.S. rice in domestic and international markets, including U.S. population growth, the level of U.S. immigration, the ethnic makeup of the U.S. population, and the size and composition of global rice trade.

U.S. exports are projected to show modest expansion. U.S. rice exports are projected to decline in 2006/07, a result of a much wider price difference over Asian competitors and tighter supplies. Exports hold nearly steady from 2008/09-2010/11 and then increase each year after 2010/11, reaching the 2005/06 level of 115.8 million cwt by 2015/06. Despite the projected expansion after 2010/11, U.S. exports remain below the 2002/03 record of 124.6 million cwt throughout the period. The U.S. export expansion is the result of a declining price difference vis-a-vis Asian competitors, expanding global trade, and increasing U.S. supplies.

While typically the world's largest rice exporting country from the late 1960s to 1980, the United States has faced increasing competition from lower cost Asian competitors since the early 1980s. First, Thailand in the 1980s, and then Vietnam in the 1990s, surpassed the United States as a rice exporter, making the United States the third-largest exporter by 1996. In 2001, India overtook the United States as a rice exporter, making the United States the current fourth-largest exporter of rice.

The U.S. share of the global export market declined from 24 percent in the early 1980s to less than 11 percent by 2000. Since 2004, smaller shipments from China have allowed the U.S. share of global rice trade to increase to about 12 percent. Despite higher production costs and substantial competition, the United States remains a major rice exporter. High quality, the reliability of the United States as a supplier, year round delivery, and versatility of products offered—including rough or unmilled rice—account for much of the United States' resilience in the global export market. High freight costs from Asian exporters to many non-Asian buyers, especially in the Western Hemisphere, also help maintain U.S. export levels.

Rough rice is expected to account for a growing share of U.S. rice exports. While the United States has lost substantial market share in the international market for milled rice, which accounts for the bulk of global rice trade, it has tripled its rough exports over the past decade. Rough rice exports are expected to account for 36 percent of U.S. rice exports in 2006/07, the highest share on record. The volume of U.S. rough rice exports reached a record 42.8 million cwt in 2002/03, with Brazil purchasing more than 7 million cwt. Rough exports are expected to continue expanding over the next 10 years and to account for a growing share of U.S. exports.

Mexico and Central America account for the bulk of U.S. rough rice exports, mostly southern long grain. South America, primarily Brazil, sometimes imports substantial amounts of U.S. rough rice when regional supplies are inadequate. The United States accounts for nearly all the rice imported by Mexico and Central America, and is the dominant supplier of rice to Latin America from outside the region.

Several factors account for the large U.S. market share in Latin America. First, the United States is the only major rice exporter that allows rough rice to be exported. The other top exporters—Thailand, Vietnam, India, Pakistan, and China—prohibit rough rice exports, preferring to keep the value added from milling internal. Second, both Mexico and Central America prefer to import rough rice instead of milled rice. This allows their mills to operate at full capacity (achieving the lowest per unit production cost) and prevents competition with domestically milled rice. Also, in addition to a location advantage over Asian shippers, the United States has trade agreements—such as the North American Free Trade Agreement and the Dominican Republic-Central American Free Trade Agreement—that assist U.S. exporters in this region.

For the past decade, the United States has also shipped rough rice to Turkey—a medium/short-grain market—but often faces competition from Australia and Egypt. Since the start of 2004/05, import restrictions have sharply reduced U.S. shipments to Turkey. The United States has protested these import restrictions to the World Trade Organization, which is currently examining this issue. The large share of U.S. rice exports going to Latin America—where the United States faces little competition from Asian suppliers—has partially insulated U.S. export levels from price changes.

The U.S. is expected to lose market share in the global milled rice market. The United States has lost substantial market share in the global market for milled rice over the past two decades. First Thailand, and more recently India, have substantially cut the U.S. market share in South Africa and Saudi Arabia, primarily due to lower prices and improved quality—especially for parboiled rice. The re-emergence in 2004/05 of Iraq as a major buyer of U.S. long-grain milled rice has halted the long-term U.S. export decline in the Middle East, with Iraq currently one of the largest buyers of U.S. rice. The United States is not price-competitive among the huge Southeast Asian rice importers—primarily Indonesia, the Philippines, and Malaysia. Thailand and Vietnam supply the bulk of Southeast Asia's rice imports.

In 2006/07, the United States lost the bulk of its market in the European Union (EU)—a high-quality long-grain market—due to costly testing requirements mandated by the EU, a result of the discovery of trace amounts of genetically engineered (GE) rice in supplies of U.S. long-grain rice. The EU typically accounted for 10 percent of U.S. long-grain exports. The EU purchased mostly brown rice—rice with the hull removed but the bran layer remaining—from the United States. The 2007 projections assume, at best, a slow recovery of some U.S. shipments to the EU. To date, Thailand has replaced most U.S. sales to the EU. India and Pakistan have recently increased shipments to the EU as well.

Only in Northeast Asia—Japan, South Korea, and Taiwan—has the United States maintained its market share in the global milled rice market. Northeast Asia imports almost exclusively medium/short-grain rice, which accounts for 10-12 percent of global rice trade. Rice imports by these three Northeast Asian countries are all the result of World Trade Organization (WTO) agreements. None of the three countries is projected to import beyond its WTO commitments.

The United States supplies almost half of Japan's WTO rice imports and has been a regular supplier to South Korea and Taiwan as well. The strength of the United States in the Northeast Asian medium/short-grain markets has offset some of the U.S. decline in the long-grain global milled rice markets. These projections assume the United States will maintain its current market share in the high-quality Northeast Asian market. South Korea, which agreed in 2005 to double its WTO imports by 2014, accounts for the only growth in the Northeast Asian market. Japan and Taiwan's imports are assumed to remain at current levels for the remainder of the decade.

Domestic disappearance is expected to continue to increase. Total domestic use is projected to climb each year of the period, reaching record levels annually. Stronger domestic use is primarily due to a rising population; increases in per capita disappearance are projected to be quite small. The 2007 projections assume domestic disappearance will expand about 1 percent each year, slightly ahead of population growth. This rate of expansion is well below the 5 percent achieved in the 1980s and the 3-4 percent rates in the 1990s. The slowdown was likely due to a shift to western diets away from a rice-based diet by second- and third-generation Asian immigrants.

While the United States has seen its share of the global rice market decline since the early 1980s, the domestic market has expanded virtually every year, outpacing population growth and leading to higher per capita use. In 1980, total domestic disappearance accounted for just 41 percent of total use. Exports accounted for the remainder. In 2006/07, domestic disappearance is projected to account for almost 55 percent of total use. A big increase in the Asian-American and Hispanic-American populations, introduction of new rice-based food products, and marketing efforts by the rice industry have accounted for much of this long-term growth.

Little build-up in stocks is projected over the decade. U.S. ending stocks are projected to slowly decline from this year's level through 2010/11, and then to slowly increase back to almost 31.0 million cwt by 2016/17. Despite the slight stocks buildup in the second-half of the period, stocks are projected to remain well below the 2005/06 level of 43.0 million cwt. The stocks-to-use ratio projection declines from 15.7 percent in 2006/07 to 11.8 percent in 2010/11, and then levels off at 12.1 percent for the remainder of the decade. From 1996/97 to 2005/06, the stocks-to-use ratio averaged 14.2 percent.

Global prices are projected to increase. Global rice prices are projected to increase about 2 percent every year, a result of increasing global rice trade and some shift to higher quality rice from lower quality imports by low-income buyers. The adjusted world price, a weekly announced rough-rice price calculated by USDA that is used to determine marketing loan benefits, is projected to increase from $7.00 per cwt in 2006/07 to $8.63 by 2016/17. The adjusted world price is projected to remain above the U.S. average rough-rice loan rate of $6.50 per cwt throughout the period. At these calculated price levels, no marketing loan payments would be made to U.S. rice producers.

U.S. season-average farm price to increase after 2008/09. Rising global trading prices and growing domestic demand are projected to push the U.S. season-average farm price higher each year after 2008/09. By 2016/17, the season-average price is projected to reach $9.95 per cwt, the highest since 1996/97. Prices are expected to drop slightly in 2007/08, primarily because California production is expected to recover from 2 years of a below-normal harvest. California rice—which is typically priced higher than southern rice—has traded at near-historical high prices since early 2006, a result of tight U.S. and global supplies of medium/short-grain rice.

U.S. prices are projected to increase at a slower pace than global prices from 2007/08 to 2013/14, reducing the price difference with major Asian competitors. This difference decreases from $2.25 per cwt in 2006/07 to $1.25 in 2013/14, a major factor supporting the modest expansion in U.S. exports over the next decade. The difference increases a few cents from 2014/15 to 2016/17. The U.S. season-average farm price is projected to be high enough throughout the period to make producers ineligible for counter-cyclical payments.

Projections for World Rice Trade

International trade in rice is quite thin relative to total production. In fact, only about 7 percent of global rice production is currently traded each year, well below the trade shares for other grains and oilseeds. Fifteen years ago, the trade share for rice was barely 4 percent. Increased market access has accounted for much of the expansion in the trade share for rice. This has been especially true for much of Latin America, where countries began to open their markets to imports in the late 1980s. Despite greater market liberalization, many governments worldwide—especially in Northeast Asia—continue to severely limit rice imports and protect their producers. These policies limit the volume of world rice trade.

In addition to being a relatively thin market, the global rice market is heavily segmented, with little substitution among types and qualities by producers or consumers. Long-grain typically accounts for more than 75 percent of global rice trade. Medium- and short-grain rice combined account for about 12 percent of global trade. Fragrant or aromatic rice accounts for about 12 percent. Specialty rices—primarily glutinous rice—account for most of the remainder. Rice can also be traded in various degrees of milling: fully milled (or polished) rice, brown rice (sometimes referred to as cargo rice), or rough (paddy) rice.

Global rice production and consumption are projected to increase over the next decade. Global rice production is projected to increase each year over the decade, almost entirely due to rising yields. Average yields are projected to increase slightly less than 1 percent a year, about the same average growth rate that was achieved during the previous 10 years. Despite the annual increases, projected yield growth is well below levels achieved from the late 1960s through the 1980s when modern high-yielding varieties were adopted in much of Asia and Latin America.

Global rice area is projected to remain nearly flat over the projection period, almost 2 percent below the 1999/2000 record. Most Asian countries have little, if any, ability to expand rice area. During the decade, smaller plantings in China are projected to be nearly offset by expanded rice acreage in Sub-Saharan Africa and Latin America. India, Sub-Saharan Africa, Bangladesh, the Philippines, and Brazil account for most of the expected increase in global rice production.

Global rice consumption is projected to increase over the next 10 years as well, largely due to a rising population in Asia and a small increase in per capita rice disappearance in certain non-Asian rice-consuming countries, mostly in the Western Hemisphere and the Middle East. Many Asian countries—especially high- and medium-income countries—are experiencing declining per capita rice disappearance due to diet diversification resulting from higher incomes. Even in many low-income Asian countries, per capita rice disappearance is nearly flat.

Total rice consumption in China—the world's largest rice-consuming country—is projected to decline over the decade. In contrast, India, Indonesia, and Bangladesh—the largest rice consuming countries after China—are expected to consume larger quantities of rice each year. These three Asian countries, plus Sub-Saharan Africa and the Philippines, account for most of the expected increase in rice consumption over the next 10 years.

On balance, consumption growth is projected to slightly outstrip production increases, pulling ending stocks down about 7 percent by 2016/17. Even with declining annual consumption, China accounts for about half the projected contraction in global ending stocks. The global stocks-to-use ratio is expected to fall from 18.7 percent in 2007/08 to 16.2 percent in 2016/17, the smallest since 1974/75.

Global rice trade is expected to increase each year. Global rice trade is projected to increase 2.3 percent a year from 2007/08 until the end of the period, reaching a record 36.0 million metric tons in 2016/17. Trade is expected to account for nearly 8 percent of annual production by 2016/17, the highest share since before World War II. Increased global rice trade is primarily driven by rising import demand from Indonesia, the Philippines, Bangladesh, the Middle East, and Sub-Saharan Africa. Combined, these five markets account for about two-thirds of the increase in global rice imports over the projection period.

Rising imports by Indonesia and Bangladesh are driven by growing populations, little ability to expand rice area, and competition for arable land from substitute crops and nonagricultural uses. For Indonesia, land constraints and an already-high crop intensity—especially on the island of Java—indicate little opportunity to significantly expand production. Yields are projected to continue rising in Bangladesh, as its high-yielding boro crop continues to account for a larger share of total rice area. Even with expanded area and higher yields, production growth is not expected to keep pace with rising demand in the Philippines. Much of the recent increase in Philippine rice production has been due to the adoption of high-yielding hybrid varieties. In contrast to Indonesia and Bangladesh, per capita disappearance is projected to continue rising in the Philippines. Even with rising imports, domestic production is still expected to account for the bulk of the rice consumed in Indonesia, the Philippines, and Bangladesh.

Despite increasing production, Sub-Saharan Africa is expected to import larger quantities of rice each year to meet rising consumption, driven by a rapidly expanding population and rising incomes. Imports account for slightly less than half of the rice consumed in Sub-Saharan Africa. Strong consumption growth is behind import expansion by the Middle East. Except for Iran and Turkey, the Middle East grows very little rice and imports account for almost two-thirds of its annual rice needs. Most of the Middle East is a high-quality import market.

Among smaller import markets, Central America, the Caribbean, Mexico, and the United States are all expected to increase rice imports during the projections. Production can not keep pace with consumption growth in Central America, the Caribbean, and Mexico. Aromatic varieties account for nearly all expansion in U.S. imports. However, imports are projected to rise only slightly to Other Asia (including Oceania), a result of increasing production and declining per capita consumption in much of Asia.

In contrast to these expanding markets, imports are projected stagnant to slightly declining over the decade for Brazil as per capita consumption declines—a result of rising incomes—and production increases. Imports are projected nearly flat for South Africa, a result of negligible growth in consumption. South Africa does not produce rice.

Long-grain rice is expected to account for the bulk of the growth in global rice trade from 2007/08-2016/17. Long-grain rice is imported by a broad spectrum of countries in South and Southeast Asia, much of the Middle East, Sub-Saharan Africa, and Latin America. Medium/short-grain rice is primarily imported by Northeast Asia—Japan, South Korea, and Taiwan—and to a much lesser extent by several countries in the eastern Mediterranean, with Turkey the largest. Oceania imports a much smaller amount of medium/short-grain rice. Expansion in the global medium/short-grain trade is projected to be much slower than for long grain.

Asia and United States account for the bulk of rice exports. Asia is expected to continue to account for the bulk of rice exports over the projection period. Six countries—Thailand, Vietnam, India, the United States, Pakistan, and China—account for around 85 percent of rice exports throughout the decade. Thailand and Vietnam, the world's largest rice-exporting countries, account for nearly half of all rice exports and more than 60 percent of the projected increase. Rising production—nearly all due to higher yields—and declining per capita consumption account for the expansion in exports for both countries. Their combined share of global rice trade increases slightly over the next 10 years.

India's exports increase more than 30 percent over the next decade, with the country's share of global trade increasing from almost 16 percent in 2007/08 to about 17 percent by 2016/17. In India, high internal price supports continue to encourage large production and exportable supplies. India is projected to remain the fourth-largest exporter over the 10-year projection period.

In contrast to the top three exporters, export shares are projected to decline for the United States, Pakistan, and China. The United States is projected to be the fourth-largest rice exporting country from 2007/08 to 2016/17. U.S. exports slowly increase over most of the projection period, with an annual growth rate of about 1 percent after 2007/08. The U.S. share of global trade declines from almost 12 percent in 2007/08, to about 10 percent by 2016/17.

Pakistan—currently, the fifth-largest rice exporting country—has little ability to expand rice area. Producers are facing a growing water shortage and agricultural-related environmental problems. As a result, Pakistan's exports are projected to be relatively flat—about 3 million metric tons a year—over the decade. Rice exports from China—currently, the world's sixth-largest exporter—remain almost flat at 1.0 million metric tons. China exported an average of 2.6 million metric tons of rice a year from 1998 through 2003. The smaller export volume for China since 2004 has largely been due to tighter supplies.

Among the smaller exporting nations, Australia, Argentina, and other South American countries (Uruguay, Guyana, and Surinam) are expected to increase exports over the projection period. Australia is projected to increase its rice exports from 150,000 metric tons in 2007/08 to 220,000 metric tons by 2008/09, as production partially recovers from severe drought. Despite this rebound, Australia's exports remain well below the record 662,000 metric tons shipped in 1998/99.

Argentina's rice exports are projected to expand 3-4 percent a year during 2007/08-2016/17, as larger production more than offsets growth in domestic consumption. Exports from other South American countries (mostly Uruguay) are projected to increase at 2-3 percent per year, as production growth outstrips domestic consumption. Australia, Argentina, and Uruguay export most of their crop.

Egypt and the EU also export rice. Egypt's exports are projected to decline over the next 10 years, as strong consumption growth outstrips fractional increases in production. Egypt's exports are currently at near-record levels. Rice plantings are not projected to increase, and Egypt's yields are already the highest in the world. Rice shipments from the EU are projected to be virtually stagnant from 2008/09 to 2016/17, after slightly increasing in early projections. The EU is not price-competitive in the global market. Most EU rice exports are shipped to North Africa, the Middle East, Central Asia, and Other Europe.