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GOVERNMENT PAYMENTS BOLSTER RICE INCOME
Rice prices have slumped to the lowest level since 1987, pressured by record U.S. production and shrinking world export demand. Current prices are around $4 per cwt, only about half of the average level of the previous five years. Depressed rice prices are certainly reason for concern, but large government program payments have stabilized the U.S. rice industry in the face of mounting world competition.

U.S. rice farmers harvested a record crop of nearly 210 million cwt in 2001, up 10 percent from the year-earlier level. The national-average rice yield soared to 6,374 pounds per acre. Through the late 1990s, rice yields averaged slightly below 6,000 pounds per acre. The record harvest reflects a combination of favorable weather and adoption of higher-yielding varieties.

Rice carryover stocks will increase sharply this season as a result of the large crop. We currently expect carryover to climb to 42 million cwt, up from 28.5 million last season. Projected carryover stocks are the largest since the 1986-87 crop year and a major reason for low prices. However, much of the blame for current price woes lies on the other side of the world.

Vietnam and Thailand are battling for an increased share of the world export market. Unfortunately, that battle is taking place at the same time that total world rice trade is shrinking. Due largely to reduced import needs by Indonesia, world rice exports are forecast to fall to 22.6 million cwt in 2002. The projected world total rice exports are down 18 percent from the recent high of 27.7 million cwt reached in 1998.

Aggressive export competition sent world rice prices into a free-fall from early 1999 through the fall of 2000. The record U.S. crop contributed to additional downward pressure on domestic prices in 2001. As we begin 2002, there is a glimmer of hope that the worst is over. However, there is little encouragement for any major price recovery. Instead, prices are expected to stabilize near current levels and perhaps bounce modestly higher if the export situation improves. China's entry into the WTO could tilt the world trade balance a bit more toward the positive side of the ledger.

Rice acreage won't change much in 2002 due to large government payments that will maintain planted acreage near 3.3 million acres despite the low prices.

THE BOTTOM LINE

Government payments will account for approximately 60 percent of U.S. rice producers' total revenue from the 2001 crop. The national-average CCC loan rate is $6.50 per cwt. When prices are below that level, rice producers can collect Loan Deficiency Payments (LDPs), which are determined by the difference between the CCC loan rate and the world market price. Because the world price is even lower than the domestic price, LDPs are relatively large.

Rice LDPs so far in the 2001 marketing year have averaged about $3.50 per cwt. Last season, rice producers collected LDPs that averaged almost $3 per cwt. When the LDP is combined with the actual market price, the income situation looks much more positive.

There is additional icing on the cake for rice producers. Production Flexibility Contract (PFC) payments, commonly referred to as AMTA payments, also contribute a substantial amount of revenue. Those PFC payments are based on historical yields that were established in the early 1980s. Consequently, the payment rates don't translate directly to price, but they do provide a nice income supplement.

In addition to the regular PFC payments, Congress has authorized Market Loss payments for the last four years, which are approximately equal to PFC payments. For practical purposes, the PFC and Market Loss payments add about $3 per cwt to the price received for rice.

The grand total of market prices, LDPs, PFC payments, and Market Loss payments translate to approximately $10.65 per cwt for the 2001 rice crop. Rice producers will get about 40 percent of their gross income from the market and about 60 percent from the government. In the aggregate, the market value of the rice crop is about $900 million. Government payments provide about $1.3 billion in additional revenue for the rice industry. Net result is $2.2 billion in purchasing power wielded by a relatively small group of only about 9,000 U.S. rice producers. Bottom line: Rice producers have a great deal of economic clout when making purchasing decisions. AM


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