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What Could Flip The Market Outlook For US Rice In 2020/2021: Up Or Down?
Part Two Of A Two Part Series
MILO HAMILTON
AUSTIN, TEXAS
In Part I earlier this month I introduced to you how I view the market for US long grain rice. I picture the world as made up of rice grains sitting on a stool with three legs. One leg is the Americas, the second leg is Asia and the third leg is world trade in rice. Leave out one of these legs and your price forecast can trip you up. A lot of folks priced their rice early this year because someone bearish told them there was too much rice to sell. I never said that to those who follow my rice advice. Get one leg wrong and you can lose a lot of money quickly in this market by selling too soon or too late for your own good.
Here is the dilemma China faces as it goes thumbs up or down on the pending trade agreement on ag products. South America and Canada have a lot of grain to sell but their domestic markets are small compared to the US. If China cuts a deal with the US on ag products and US cuts its tariffs there is huge benefit to China that cannot be obtained from South America or even Canada, whose economies together are only one-fifth as large as the US.
On the other hand, if China is shoved to the back of the line and high tariffs are imposed their economy will at best erode. That would come at the very time they are detaining huge numbers of Muslims in the western part of China. Also, they have vast soil pollution caused by metal mining in their rice farming belt as well as uncertainty over meat supplies going forward. Their hog herds have declined due to a very annoying virus that has cut its sow herds by 20-40 percent. And then there is the issue of Hong Kong and the issue of independence. As they say when it rains it pours. The US has its own problems but not these fortunately.
China may be thinking Biden is a shoo-in but that is now murky. More and more countries are talking about the shortcomings of China and want into the US market. As the White House tries to shift its big bad wolf designation from Russia to China. This all may favor the incumbents who are in the trade war with China.
The democrats are in a impeachment war with the White House and the Senate. This political stalemate has sucked the oxygen out of DC; but the world goes on with or without the impeachment of President Trump. If China views its $123 billion of ag product imports as access to the US market, South America and Canada diminish as ag suppliers to China, no matter how cheap their products are relative to the US. We are living in a non-economics 101 world rice now.
You might think that China has nothing to offer the US rice market. The have bought very little from California or the South. The only impact to date that China has had on the rice market is to crush the bean price in the US and turn growers’ attention to farming more rice in the Delta in 2020. There is a Great Wall of China and it is the stonewalling of the US market. Instead of buying US rice, they have dumped medium grain into Puerto Rico, Egypt and other points east. China claims to have two thirds of the entire world’s stock of rice. The only problem with those stocks is that a lot is farmed where there are also zinc, cadmium and aluminum mines to feed the world’s appetite for gadgets. Only recently has China tried to deal with the toxicity in its soils, which experts think will take trillions of dollars to clean up.
Something nice happened to China in the eyes of the US rice industry in 2019. The long-standing complaint that China was way over-subsidizing its rice sector was upheld by the WTO and so China should comply this year with the WTO ruling. Does China subsidize its rice production? I should say it does. USDA estimates that it may have identified 31 separate rice subsidies at work in China. They claimed they spent less than 8.5 percent of the value of the crop protecting its rice farmers.
China has disrupted and bankrupted many companies in many industries over the years. China so far has set its own rules of trade. To quote Peter Zeihan in a recent tweet, a former Austinite and good friend who doesn’t pull punches.
“The Chinese overfinance things, and then overproduce them, and then sell the product at a loss. They do it for steel, cement, gasoline, electronics, cellular technology, cars, plastics… and rare earth metals.” [And rice as well…]
"Peter Zeihan, Author of an upcoming book, “The Disunited Nations: The Scramble for Power in an Ungoverned World.”
China does not play by the rules and farmers that grow rice to make a profit are throwing in their towels across the Americas as they crush the price by dumping rice, grown at much higher prices.
Although the word for crisis or turning point is not also the word for opportunity in Chinese as was once supposed, it should be. Out of crisis comes change that is often for the better.
Put this on your calendar. At the Memphis Hilton at the end of this month I will present my thoughts at the Midam Cotton and Rice Conference there. Hope you can make it on 30-31 January. ∆
MILO HAMILTON: Senior Economist and President, Firstgrain, Inc.
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