Agricultural and Food Policy
 Agri Outlook
Radio
Number 70
Outlook: Rice and Economic Outlook (7:16 minutes)
Audio/Video Script:
Dr. Bobby Coats
Extension Economist
University of Arkansas, Division of Agriculture
The global economy still has amazing potential to grow and I expect several
more years of solid growth before normal business cycle weakness occurs, so I
presently remain bullish on food and fiber commodities. I’m Bobby Coats
Extension Economist University of Arkansas Division of Agriculture.
The week of August 13, 2007 saw financial and commodity markets weaken
around the world causing money managers, funds, and individual investors to move
to protect gains on their equity and commodity assets. By Friday August 17th
due to the tightening credit conditions and increased financial uncertainty’s
potential to restrain economic growth the Federal Reserve Board approved a 50
basis point reduction in the primary credit rate to 5-3/4 percent, to narrow the
spread between the primary credit rate and the Federal Open Market Committee's
target federal funds rate. The Board also announced a change
to the Reserve Banks' usual practices to allow the provision of term financing
for as long as 30 days, renewable by the borrower. The Fed said that these
changes will remain in place until the Federal Reserve determines that market
liquidity has improved materially.
Since November of 2005 global growth accelerated to an extremely robust level
creating a huge demand for commodities and creating strength in the equities and
commodities markets around the world. In the best of markets, corrections do
occur and the Federal Reserve signaled the world on Friday that they would
provide the needed liquidity to assure crowd or panic behavior did not
unrealistically impact the equity and commodity markets.
The dynamics of our new global economy continues to amaze me. I’m amazed at
the strength that it has exhibited and I am amazed and white knuckled sometimes
at the potential downside, which is exactly why our row crop producers need a
farm bill with a strong farm safety net.
Turning to rice:
USDA’s August supply and demand report indicates the following for U.S. long
grain rice:
2007/08 beginning stocks at 30.6 million cwt is below
the previous marketing periods 32.7 million cwt but the second
highest since 1986.
2007/08 production at 140 million cwt is below the
previous marketing periods 146 million cwt and 2005/06’s 178 million
cwt and the second lowest in the past nine production periods.
2007/08 total supply at 185.6 million cwt is below the
last marketing period’s 193 million cwt and 2005/06’s 213 million
cwt.
2007/08 total use at 168 million cwt is above the last
marketing period’s 163 million cwt and below 2005/06’s 180 million
cwt.
2007/08 ending stocks at 17.6 million cwt is
considerably below last year’s 30.6 million cwt and 2005/06’s 32.7
million cwt.
Additional points:
Commodities as a group have built a considerable amount of strength since the
beginning of 2002 due to strong global growth. As a group they have been
correcting and consolidating since last fall. The strength and consistency of
global growth will determine the depth of the correction and the length of the
consolidation. Moving forward I still favor commodities as a group trading in a
higher range than the period 1979 to 2005 time period, which is to say I’m
bullish on commodities.
Our current credit crisis is extremely dangerous but the Federal Reserve
seems to have signaled that they are willing to strike the right balance between
managing inflation and promoting economic growth. It is my belief that there is
still much more strength than weakness in the global economy and this global
strength will sustain the strong demand for commodities including our food and
fiber commodities into the immediate future. The biggest problem our producers
face in the export market is simply market access.
On rice price outlook USDA’s 2007/08 all rice season-average farm price is
projected at $9.75 to $10.25 per cwt or $4.39 to $4.61 per bushel.
The events of the week of August 13 introduced significant uncertainty into
the global commodity markets. It is now important to assemble data and
information to answer an array of questions related to the event. My current
expectation is that wheat, soybeans and corn will show price weakness over the
next 4 to 6 weeks before prices start strengthening. Weakness exists in the long
grain futures rice market. That said, the weekly long grain rice chart shows
rice consolidating above the $10 per cwt level.
The global economy still has amazing potential to grow. I expect several more
years of solid growth before normal business cycle weakness occurs, so I
presently remain bullish on food and fiber commodities.
Recognize the challenges, uncertainty, and volatility of this market and seek
professional marketing assistance when making marketing decisions.
This has been Bobby Coats Extension Economist University of Arkansas Division
of Agriculture.
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