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Italian rice market concerned by price rises as harvesting peaks


Low carryover, slow harvest among reasons for price spike

Most prices return to or exceed pre-harvest levels

Farmers continuing to hold in expectation of further price rises

The Italian rice market has been in a state of shock in recent weeks as paddy prices have climbed in response to several factors that have created an almost perfect storm.

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While October is typically a month of price softness as the bulk of the harvest arrives on the market, October 2021 has differed in northern Italy. As one broker remarked, "the quantities of paddy rice offered on the market should be higher, the rice mills should not have difficulty in finding the quantities they need and prices should be softer."

All three have not come to pass this year. As a result, liquidity is drying up at the time of year when it should be peaking. Another broker exasperatedly stated that the situation "is weird, it's difficult, no one understands."

Crop changes

To add to the confusion, the 2021 crop is not particularly smaller than the 2020 crop. According to Ente Nazionale Risi, the planted area for this crop only decreased by 0.2% on year to 226,800 hectares.

Instead, the root of the issue lies in low carryover stocks. At the point when the Italian marketing year was coming to a close in early August, ENR data shows that Japonica paddy stocks in farmers' hands totaled 39,734 mt. While only down by 19% on year, this figure was down by 39% from the same point in 2019 and by a staggering 52% from 2018.

In addition to unusually low stocks, the delay to planting in spring and slow maturation due to occasional cloudy weather and below-average temperatures in late summer also led to a slight delay in the start of harvesting. The pace of harvesting in the final weeks of September was also far below average because of the slow maturation.

These factors have been exacerbated by the increased holding power of farmers. While typically farmers would sell approximately 20% of their crop almost immediately following the harvest due to a lack of storage, farmers are not in a rush to sell this year. Some sources have reported a recent increase in farmers' storage capacity. Additionally, much of the crop that farmers must sell early on for space reasons has been fulfilled by contracts concluded before the harvest, meaning that paddy available on the spot market is tight.

Varietal shifts

A further point to consider is that while production only saw a minor decrease on year, this masks significant changes among the different varieties.

Due to poor financial returns in the opening months of 2021, round grain planted area declined by 14% on year, according to ENR. However, with European hospitality venues re-opening from lockdowns, demand for sushi rice has increased significantly. "Everybody is asking for round grain," said one major mill Oct. 22.

Much of the shift away from round grain went towards Indica, with ENR estimating that planted area expanded by 18% on year. However, this has been largely offset by reduced output in Europe's second-largest rice producer, Spain.

Spanish sources reported earlier this year that planted area in the country's heartland, Seville, may only total approximately 50% of what is normal. Significantly, the overwhelming majority of production in the region is Indica.

Farmers' glee, mills' concerns

Farmers are all too aware of an uncertain future for them in 2022 amid rising fertilizer and fuel costs, with some sources remarking that they are already attempting to factor this into pricing.

Farmers are also paying attention to the global rice market, realizing that the delivered cost of Asian rice in Europe has increased significantly in the past year due to rising freight costs. Whereas freight from most Asian origins to major European ports would typically be around $1,000/TEU, costs today are typically at least tenfold higher.

Mills have entered the new marketing year greeted by low stocks, a delayed harvest, unfavorable production shifts and emboldened farmers who are well aware of their own much more favorable position. As a result, mills have been buying paddy from farmers at almost whatever price is offered to stay running and to fulfill orders. But in doing so, they are validating farmers' already inflated offers, often leading to further price rises.

One source reported that the situation was so bad that major mills were rumored to be attempting to pre-order paddy from farmers for the 2022 crop. A major mill denied the rumor, stating that it was still "too early" to be concluding deals for the 2022 crop. Nonetheless, it has still played a role in lifting farmers' already high spirits.

In this context, the outlook for 2022 is very concerning, but also very unclear. Time will tell if the paddy prices farmers are asking for are sustainable in the context of factors such as Spain's production decrease. In the meantime, farmers will be enjoying the end of the harvest as mills and buyers watch the situation with increasing concern.