Cuts in California rice open doors for competitors


Issue Date: May 20, 2015
By Ching Lee
Once again, California rice farmers are planting less rice due to water restrictions, while Southern rice-growing states are expanding their production of medium-grain rice, taking some of California’s markets in the process.
Photo/Christine Souza

With California farmers not planting as much rice due to water restrictions, Southern rice-growing states are jumping in to fill the gap by expanding their production and taking some of the Golden State's markets in the process.

"You'd think with the drought and the reduced acres that things would be good, but the business went elsewhere," said Charley Mathews Jr., a rice grower in Yuba County.

Although Southern states such as Arkansas and Louisiana typically grow long-grain rice and very little of the medium-grain rice that is the dominant variety in California, Southern growers are devoting more acreage to medium grain in expectation of tighter supplies from California, said Nathan Childs, an economist at the U.S. Department of Agriculture. Higher returns for medium grain also have made it a more attractive choice for Southern growers, he added.

"Long-grain prices really went down last year, and so if you're a grower in the South, you look to soybeans or medium-grain rice," Mathews said, adding that newer rice varieties have allowed Southern growers to incrementally increase their medium-grain production.

Southern medium-grain acreage more than doubled last year to 301,000, according to USDA, while California's total rice acreage fell 30 percent—from 567,000 in 2013 to 434,000 in 2014. Total U.S. medium-grain acreage rose 6 percent last year.

More medium-grain rice will be planted in the South again this year, as water restrictions force California farmers to decrease their plantings even further. Initial estimates from USDA indicate Southern growers intend to plant 311,000 acres of medium grain, while California farmers will grow 375,000 acres of medium grain and 408,000 acres of all rice varieties, a 6 percent reduction from 2014.

California Rice Commission spokesman Jim Morris noted that the 2015 USDA estimates were made before the state's water allocations were finalized—and that California's total rice acreage will likely be lower.

While reduced plantings have had a significant impact on local communities and businesses that depend on rice farming, Mark Kimmelshue, general manager and CEO of Associated Rice Marketing Cooperative in Butte County, said those reductions "probably aren't going to have a huge effect on the world market and the price of rice."

He said not only has production in other states offset the reductions in California, but the price of California rice has been relatively high compared to other rice sources in the world. He noted that Southern medium-grain rough rice (before it is milled) is now selling for $14 to $15 a hundredweight, while California medium-grain rough is $21 cwt.

"We haven't sold as much rice as we had in previous years," he said. "That means there's going to be more rice carried in from the 2014 crop into the 2015-16 marketing year than there has been in the past."

Kimmelshue said while the state normally ships rice to Turkey, the country has not bought any rice from California this year; all shipments have come from the South. Likewise, Taiwan, which has been a big market for California rice, has been buying more Southern rice.

Asian markets such as Japan, South Korea and Taiwan typically prefer the quality of California rice, but those are limited markets, Kimmelshue said, and right now there's much more rice in California than those markets could absorb.

Turkey, Israel, Jordan and Saudi Arabia historically have been big customers of California rice when prices were lower, but they've been turning to the Southern states' less-expensive product, he added.

Mathews said the strength of the dollar has not helped, and political turmoil in the Middle East has affected sales to Libya and Syria, two of the state's biggest customers a few years ago. Turkey and Libya are two of the largest buyers of U.S. medium- and short-grain rough rice, whereas Japan, South Korea and Taiwan typically take almost two-thirds of total U.S. medium- and short-grain exports, USDA economist Childs said.

Disruption at West Coast ports due to a nine-month-long labor dispute between shippers and dockworkers, which heightened last winter, also contributed to the state's increased rice stocks, Childs said.

Winter is usually peak export season for rice, Mathews said, and the port slowdown affected the state's ability to ship rice to its Middle Eastern customers, who turned to Australia, a major competitor.

Rice production from Down Under had dropped off significantly during Australia's drought several years ago, but in recent years, it has made a huge comeback, Kimmelshue said. Australia not only competes with California in Middle Eastern markets but in key Asian markets of Japan, Korea and Taiwan, he added.

One competitor the state doesn't have to worry much about is Egypt, once a major supplier of medium-grain rice. In recent years, the Egyptian government has been restricting rice exports in favor of keeping most of its supply for domestic consumption.

Mathews said California is now catching up on its export backlog from the port slowdown, which ended in late February. He noted this summer will be a busy export season for California rice because Japan, which usually imports rice in the winter, has shifted its purchases to the summer due to the earlier disruptions at the ports.

"So we'll be able to move our crop, but it's just very delayed," he said.

Kimmelshue said he expects the price of rice will remain at current levels for the rest of the 2014-15 marketing year and into the 2015 crop. If the state receives plenty of rain this winter, prices could drop, because California farmers would plant more rice, increasing supplies. But if the drought continues and state rice acreage continues to fall, prices could start moving up again.

Mathews said regardless of what happens in the market, his planting decisions remain the same every year because his land is not suited to growing anything but rice. Plus, his water supply is in "pretty good shape," he noted, and he has access to groundwater in some of his fields.

"The summertime is when things are going to get dicey, because that's when reservoirs get down to the bottom," he said. "What you don't ever want to see is somebody's crop getting shut off in the middle of summer. I've never seen it before, and we just hope it doesn't happen."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

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