Californian rice marketers face difficult year ahead as paddy hits $30/cwt

The Californian rice market is entering uncharted territory as planting for the 2022 crop wraps up.

The cost of paddy in one of the world's leading providers of high-quality Japonica rice has been consistently increasing for a year-and-a-half on the back of supply concerns, reaching consecutive all-time highs in recent months. These have only worsened as this period has progressed, with the La Niña weather event limiting the amount of precipitation California has received. This has left many of the state's dams at unusually low levels for this time of year following one of the driest winters on record.

This, in turn, has curbed farmers' water allocations for their irrigation-dependent crops. One of the Californian rice country's largest water districts, Glenn-Colusa Irrigation District, warned farmers in late March that water deliveries "will be the most limited ever in the District's history." Farmers have been forced to respond and one seed seller reported in early April that "our orders are way down and we're getting cancellations of prior orders every day."

At present, sources typically project a crop of around 200,000-250,000 acres (80,937-101,171 hectares). To put that in context, the 2021 Californian crop was viewed as a poor crop and the area still totaled 415,000 hectares (167,945 hectares), according to the US Department of Agriculture, with a "normal" crop generally viewed as being in excess of 500,000 acres (202,343 hectares).

All-time highs

Anecdotally, sources relay that this will likely be the state's smallest crop in around 50 years. As a result, both paddy and milled rice prices have been smashing previous all-time highs. US #1 Paddy, 58/69 Yield reached $30/cwt over loan ($824/mt) ex-works May 9 up by $7/cwt ($154/mt) from the start of 2022, with no volumes of 2021 crop left to trade, according to the Platts assessment by S&P Global Commodity Insights data. The US #1, 4% broken white rice assessment has risen by $215/mt over the same period to $1,415/mt FAS FCL Oakland.

The jumps in paddy prices have been fueled by eagerness at some mills to lock in paddy supplies ahead of what could be an extremely erratic year. One miller labelled it as "panic buying," with a second saying that the sales had been made out of "desperation." On the other side of these trades, one paddy pool operator said it was going to be a "wild and crazy year."

Low supplies and paddy price increases create acute problems for mills that are marketing the state's crop. Despite milled rice prices spiking along with paddy, marketers typically agree that milled rice pricing still does not reflect $30/cwt paddy. One marketer said milled rice prices would need to steadily inch up over the summer to around $1,600/mt FAS FCL Oakland to match paddy pricing today, but they fear that price will alienate most of their buyers.

A second put this figure at closer to $1,550/mt FAS FCL Oakland, but raised another issue for marketers: "I'm sure Australian rice will be cheaper, so I'm not sure how much [will be sold]." Another source agreed, stating that Australia "is loving this famine and their soon-to-be feast," alluding to the bumper crop Australian farmers are harvesting.

Strategic thinking

With Californian output likely to almost halve year on year, marketers will have no issues selling the next crop to core buyers and will be compelled to ration sales to buyers, even at peak supply. Domestic sales typically account for half of utilization in a normal year, with the core Japanese and South Korean markets accounting for around another 35% of sales, aided by US country specific quotas in both countries. Many of these buyers will simply swallow the increased costs, with marketers carefully managing the price rises and which buyers are supplied.

However, many non-core buyers from California will not be so amenable to the price rises. "Our buyers are likely freaking out," one miller said, adding that they are exploring other sourcing options. For quality-conscious Japonica rice buyers, this will likely lead them to Australia -- or even South America -- due to high prices and supply concerns in Europe. But some less selective and more price conscious buyers could turn to Vietnamese Japonica or even Chinese old crop Japonica to fulfill their requirements.

As a result, sources have raised long-term concerns that low exportable supplies and high prices could change California's export landscape for years to come. It is feared that buyers may not automatically return to California once the state produces another "normal" harvest, with this outcome likely to weigh on future prices as the industry battles to reclaim market share.

These eventual outcomes for the crop, which Californian farmers are still only planting, is some way off. However, the industry is already being compelled to think strategically to safeguard its future. Marketers are more than aware that not competing in certain tenders or supplying certain markets could have repercussions stretching well beyond the marketing of the 2022 crop.