RICE YEARBOOK January 9, 1998 December 1997, RCS-1997 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- RICE YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the RICE YEARBOOK--tables and graphics are not included. Summary released December 17, 1997. The summary of the 1998 Rice Yearbook is scheduled for release on September 1, 1998. Published copies of RICE YEARBOOK are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #RCS-1997, $21. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- Contents Summary U.S. Outlook for 1997/98 International Outlook for 1997/98 Special Article: Projecting Annual U.S. Rough Rice Prices List of Tables Report Coordinator Nathan Childs Data Coordinator Jenny Gonzales (202) 694-5296 Economic Contributors Nathan Childs (202) 694-5292 Editor Diane Decker (202) 694-5116 Rice Conversions 1 cwt = 100 pounds = 2.22 bushels = .0453 metric ton 1 metric ton = 2,204.6 pounds = 22.046 cwt = 48.992 bu. 1 cwt rough rice = .032 metric ton milled 1 metric ton milled = 31 cwt rough Summary U.S. Rice Prices To Continue Strong in 1998 U.S. rough rice prices are projected to remain firm for the rest of the 1997/98 marketing year (August/July), due principally to strong domestic and export demand and continued tight supplies of high quality long grain rice. Through the first 4 months of the marketing year, U.S. farm prices averaged $9.89 per cwt, up from $9.76 a year earlier. The high prices are partly due to very strong U.S. rough rice exports early in the marketing year. Continued strong demand is expected to maintain the season average U.S. farm price between $9.25 and $10.25 per cwt, with the midpoint just 15 cents below last season's average of $9.90. The 1996/97 price was the highest since the $12.80 reported in 1980/81. Season average farm prices have exceeded $9.00 since 1995/96. World trade is projected to be 19.2 million tons in 1998, up 5 percent from 1997 and approaching the 19.5 million traded in 1996. The robust trade is partly due to weather-related difficulties in certain regions associated with this year's El Nino effect--most importantly Indonesia and the Philippines. In addition, El Nino impacts have been responsible for greater imports in second-half 1997 by several countries in Latin America, a major market for U.S. rough rice. In contrast to the continued strong farm prices, prices for U.S. long grain milled rice have declined since late summer and are below a year earlier. Prices for medium grain milled rice have been flat since early 1997 after dropping for over a year. The devaluation of the Thai currency that began in July caused Thai prices to plummet this summer and autumn to well below early summer levels. The decline partly explains why U.S. milled rice prices softened this summer even though total U.S. exports and domestic use are projected higher than in 1996/97. With U.S. export prices for long grain milled rice essentially flat since August, the U.S. price premium over Thai rice widened substantially as the Thai price fell, making the United States uncompetitive in a number of markets. However, strong growth in world demand--especially in Asia--in 1998 will likely limit any long term decline in international prices. For 1997/98, world rice production is projected to be a record 382.7 million tons (milled basis), up almost 3.8 million tons from 1996/97. World consumption is projected at 381 tons, also a record and up 5.1 million tons. With production exceeding consumption by 1.7 million tons, ending stocks are projected to rise 3 percent to 54.9 million tons. The offsetting combination of larger global stocks and record use result in a stocks-to-use ratio of 14.4 percent, slightly above a year earlier, but still low enough to make prices sensitive to any production shortfall in a major consuming or producing country. U.S. 1997 Crop Posts 5-Percent Gain Based on November 1997 yield and area estimates, the 1997 U.S. rice crop is forecast at 180 million cwt, up 5 percent from last year. Greater planted area more than offset a small drop in average yield from the 1996 record. Long grain production is projected at 125.8 million cwt, up 11 percent from 1996. In contrast, the combined medium/short crop is estimated at 54.1 million cwt, a 6-percent drop. U.S. rice plantings are estimated at almost 3.1 million acres, up nearly 9 percent from 1996 as rice prices--especially for long grain--were relatively high compared to alternative crops and historic rice prices at planting time. Long grain area is up 15 percent, while the combined area for medium and short grain is projected to drop 7 percent. All States except Texas reported greater planted area and larger crops. The national average yield is forecast at 5,926 pounds per acre. Although down 3 percent from the record 6,121 pounds in 1996, the yield is still the third highest on record. The decline is largely due to late planting along the Gulf, delayed emergence in much of the Delta, and a shift in share of total area to the lower yielding southern long grain rice. In contrast, record yields were achieved in California largely due to generally excellent weather during planting, growing, and harvesting. Expanding Use Keeps Ending Stocks Low A projected increase in U.S. exports and record domestic food use are expected to lower 1997/98 ending stocks to 26.2 million cwt (rough), more than 3 percent below a year earlier, even though total supplies are up almost 5 percent. The stocks-to-use ratio is projected to drop to 13.7 percent from 15.1 a year earlier, making the ratio the second lowest since 1980/81. On a marketing year basis, 1997/98 U.S. rice exports are projected up 9 percent from last year to 83 million cwt (rough basis), but below the record 99 million of 1994/95. Rough rice exports--with Latin America accounting for the bulk of shipments-- are projected to expand at a faster pace, rising almost 20 percent to 15 million cwt. Greater supplies and lower prices are behind the outlook for expanded U.S. exports. On a calendar year basis, U.S. rice exports are forecast at 2.8 million tons (milled basis) in 1998, up from 2.4 million in 1997 but below the 1995 record of almost 3.1 million. Even with world trade expected to increase, the market share for U.S. rice is projected at 14.6 percent, above this year's 13.1 percent, but well below the 17-percent average for 1990-95. Latin America, Canada, the Middle East, Europe, and Japan are expected to remain important markets for U.S. rice well into the next century. U.S. exports in 1997/98 and market share in 1998 will depend primarily on how much rice is available for export after domestic demand is met. To a lesser extent, exports will depend on the U.S. price premium over foreign competitors' prices--particularly those of Thailand, the major competitor in high-quality markets-- and the subsequent reaction of buyers in price-sensitive markets. But because the United States is the only major exporter that allows rough rice exports, it will likely face little competition in this growing market. U.S. Outlook for 1997/98 Farm Prices Forecast To Remain Strong in 1997/98 U.S. farm prices have averaged almost $10.00 a cwt since January, and have been supported by generally tight domestic long grain supplies and continued strong international demand for high-quality rice --especially for U.S. rough rice. U.S. farm prices are expected to remain strong through the end of the 1997/1998 crop year, due principally to expected stronger world trade in 1998, continued expansion in the domestic market, and generally tight supplies of U.S. long grain rice. Less strength is likely for California medium grain prices due to a record California crop and projected lower medium grain exports in 1997/98. In December, the 1997/98 (August-July) season average farm price was forecast at $9.25 to $10.25 per cwt, with the midpoint just 15 cents below the $9.90 estimated for 1996/97. The 1996/97 price was the highest since 1980/81. Through the first 4 months of the 1997/98 marketing year, U.S. farm prices averaged $9.89 per cwt, above a year earlier's average of $9.76. Farm prices started to rise early in the 1995/96 season and exceeded $9.00 by November 1995. Since late 1995, monthly farm prices have exceeded $9.00, the longest continuous stretch of prices this high since the late 1970's and very early 1980's. Virtually all of the recent price strength has been for southern long grain rice, with California medium grain trading at lower prices. A major factor behind the difference in rough rice prices is that the bulk of U.S. rough rice exports--which were quite strong in the first 4 months of the 1997/98 market year--have been southern long grain. A smaller crop this year has helped maintain southern medium grain prices. Much of the southern medium grain rice is used in processed foods and beer. With exports accounting for about 40 percent of total U.S. rice disappearance, events in the international market can affect U.S. prices. Therefore, even in years of tight domestic supplies, producer prices are constrained by the need to keep U.S. rice competitive with foreign rice. In contrast to strong U.S. rough rice prices, internationally traded rice prices have dropped substantially since July when the devaluation of the Thai currency began. The devaluation led to a wave of devaluations and economic troubles across most of Southeast Asia, and to Northeast Asia and other parts of Asia a short time latter. By September, as Thai prices continued to drop, other Asian exporters--particularly Vietnam--reduced prices as well to remain competitive. Weak import demand for rice late in the summer also contributed to declining international prices. In early December, large purchases of Thai rice by Indonesia and the Philippines for shipment in late 1997 and early 1998 sparked some price strength. Vietnam's prices have recently risen as well, primarily because its exportable supplies have become scarce. The strong trade projected for 1998 will likely prevent any further decline in international prices as demand expands. On the supply side, large crops in key Asian exporting countries-- Thailand, Vietnam, and India--will provide adequate exportable supplies for 1998's expanded trade. Although U.S. export prices are currently below the high levels reached a year earlier, the U.S. price premium over export competitors' prices is expected to remain extremely wide in 1998, hurting U.S. competitiveness in some price-sensitive international markets. The increased share of U.S. exports going to Latin America and other Western Hemisphere destinations--as well as the larger share shipped as rough rice--will limit the impact of such a large price premium. Aside from fragrant and aromatic rices, little Asian rice is exported to the Western Hemisphere. In addition, no significant Asian exporter allows rough rice exports. In contrast to U.S. rough rice prices, f.o.b. Houston offer quotes for No. 2, 4-percent broken (high-quality long-grain) have remained at $419 per ton since mid-August after dropping from $441 in early August and from $463 in early July. A larger share of U.S. rice exported as rough rice, an already extremely high price premium over Thai rice, and a slow pace of exports and sales in August and September account for the current stagnant level of U.S. milled prices in the face of continued high farm prices. The pace of U.S. rice exports and sales commitments was slightly behind a year earlier in early December, even though U.S. exports are projected 9 percent higher in 1997/98. A 17 percent increase in U.S. exports projected for 1998, plus some firming of international prices in response to the greater world trade in 1998 will likely limit any future decline in U.S. milled long grain prices for 1997/98. California medium grain f.o.b. prices have remained at $397 per ton since mid-February, after steadily dropping since early 1996. In fact, f.o.b prices for California medium grain were over $500 at the start of 1996. Little import buying beyond Japan's minimum access imports, a record 1997 U.S. crop, and a record 1996/97 Australian harvest are behind the stagnant prices for California medium grain rice. For the third year in a row, South Korea purchased no U.S. rice as part of its 1997/98 WTO-required minimum access purchases. In addition, through November 1997, the United States accounted for only 32 percent of Japan's regular minimum access purchases, down from over 45 percent in the previous 2 years. Prices for No. 2, southern long grain rice averaged $450 per ton in 1996/97, up from $414 a year earlier and the highest since 1980/81. Similar type and quality offer quotes for Thai rice (100 percent, grade B, f.o.b. Bangkok) averaged $338 per ton in 1996/97, down from $362 1995/96. Thus, the price premium of U.S. high-quality rice over Thai rice was significantly higher in 1996/97, averaging $112 per ton compared with $52 in 1995/96. The premium is currently over $150 per ton, the highest since the spring of 1994. Higher U.S. Production Forecast for 1997/98 Based on estimates in early November, USDA forecasts the 1997 U.S. rice crop at 180 million cwt, up 5 percent from 1996 and virtually tied with 1992 as the third highest on record. A 9-percent increase in planted area to almost 3.07 million acres more than offset a 3-percent drop from 1996's record yield of 6,121 pounds. Yields are projected lower this year in all southern States, largely due to delayed planting along the Gulf Coast--the result of an extremely wet spring--and cold weather that delayed emergence in much of the Delta. Short periods of very hot days and warm nights in July may have contributed to lower yields in Arkansas. In 1996, record yields were achieved in all five southern rice producing States due to very favorable weather throughout the growing season. In contrast to the South, a record yield of 8,500 pounds is estimated for California--which experienced favorable weather throughout the 1997 growing season-- even though blast, a disease that causes plants to wither, was present in certain counties for the second year in a row. California varieties are not currently blast-resistant, making blast a potentially severe problem for producers. U.S. rice production by type changed significantly this year from 1996. Production of long grain rice--grown almost entirely in the South--is estimated at 125.8 million cwt, up 11 percent from 1996. In contrast, production of medium grain rice--grown in California and the South--is estimated at 52.6 million cwt, more than 7 percent lower than last year. Short grain--which is grown only in California and Arkansas and accounts for less than 1 percent of total U.S. production--is projected at 1.5 million cwt, up 44 percent from 1996 with California accounting for all of the gain. All of the decline in medium grain is projected for the South. The California medium grain crop is projected to rise slightly. Rice Acreage Up 10 Percent in the South Rice plantings are currently forecast at almost 3.07 million acres, up 246,000 acres from 1996. The near 9-percent area increase is primarily due to very high prices for rice at planting compared with alternative crops--primarily soybeans in the South--and compared with historic rice prices. All of the increase is in long grain acreage, projected 15 percent higher than in 1996. Medium grain planted area is projected to drop almost 8 percent. Generally higher prices for high-quality long grain rice than for medium grain at planting account for most of the shift in southern acreage to long grain rice. When 1997 planting decisions were being made, the national average monthly farm price for rice was up significantly from a year earlier. Monthly farm prices averaged almost $10.10 per cwt between January 1997 and April 1997, almost a dollar higher than a year earlier. Equally important, prices for soybeans--the primary rotation crop across the South--had dropped from their extremely high levels of a year earlier. Producers' initial planting intentions as reported in the Prospective Plantings report, released in March, were for 2.88 million acres of rice. Plantings were revised upward in the June 30 Acreage report to almost 3.07 million acres, likely the result of strengthening monthly cash prices and futures quotes that exceeded $10 per cwt for September and November contracts. Harvested area is also forecast up nearly 9 percent, to more than 3 million acres. Very little abandonment of rice-planted acres occurs in the United States because all of the area planted is irrigated. Long grain area was reported up 303,000 acres--or over 15 percent--from 1996 while medium grain was down 62,000 acres or 7.5 percent. In the South, long grain plantings rose 302,000 acres while medium grain dropped 69,000. Short grain plantings are estimated at 20,000 acres, up 5,000 acres from 1996 due to larger plantings in California. Rice area is up in all States except Texas, which has generally lost rice area since 1980. Arkansas posted the largest increase-- 170,000 acres--planting 1.35 million acres and accounting for over half the total area expansion. All of the increase was for long grain; medium grain plantings dropped 50,000 acres. Mississippi--which grows only long grain rice--posted the second largest area increase, with plantings rising 60,000 acres to 270,000. Rice acreage in Louisiana rose 35,000 acres to 570,000, with long grain up 50,000 acres and medium grain down 15,000. Total Texas rice acreage dropped 40,000 acres to 260,000, with long grain accounting for the bulk of the drop. Missouri, the smallest rice producing State, posted an 8,000-acre increase to 100,000. Texas and Missouri grow mostly long grain rice and very small amounts of medium grain. Record Yield and Crop Estimated for California The national average yield is forecast at 5,926 pounds per acre, down 3 percent from last year's record but still the third highest ever. This year's lower yield is the result of weather-related difficulties across the South--late plantings in Texas, and delayed emergence and harvest in much of the Delta. Abnormally hot weather in Arkansas during July may have hindered crop development in that State. In addition, the decline from the 1996 record yield is partly due to a shift in share of total planted acreage from the higher yielding California medium grain rice to the lower yielding southern long grain. In contrast, average yields in California are projected at 8,500 pounds per acre, up 13 percent from 1996 and tied with records achieved in 1992 and 1994. Early planting and a cooler than typical spring boosted yields. Early planting is generally associated with less disease and insect problems than later planted rice. Arkansas--which produces over 40 percent of the U.S. crop--has an estimated yield of 5,600 pounds. Although 9 percent below last year's record, it is still the third highest. The average yield in Mississippi is projected to be 5,500 pounds, 500 pounds below 1996's record. Missouri has a projected yield of 5,400 pounds, down 150 pounds from its 1996 record. A cool, wet spring delayed emergence in much of the Delta and likely contributed to the lower yields in the region. Louisiana is projected to achieve an average yield of 4,800 pounds per acre, less than 2 percent below the 1996 record. Louisiana extension specialists state that this year yields on the "ratoon", or partial second crop, averaged higher than typical due to very good weather during the ratoon crop season. Texas, which experienced extremely late plantings due to a very wet spring, is projected to achieve a yield of 5,600 pounds, nearly 10 percent below last year's record. In addition, few Texas producers were able to harvest a ratoon crop due to the delayed spring plantings. About 40 percent of Texas rice farmers harvest a second crop, accounting for 10 percent of the State's total crop. This year, no more than 10 percent could harvest a ratoon crop. In addition, much of Texas' ratoon crop was reported to be of poor quality--i.e., low milling yield. All States except Texas are projected to produce larger crops in 1997 than last year. The California crop is pegged at a record 43.6 million cwt, over 16 percent larger than last year. Arkansas is projected to produce 74.9 million cwt, up 4 percent from last year but still below the State's 1994 record of 80.9 million cwt. Mississippi's crop is projected at more than 14.7 million cwt, up 18 percent. Missouri's crop is projected at 5.1 million cwt, up almost 3 percent. Louisiana's crop is projected at 27.1 million cwt, over 4 percent larger than the 1996 crop. The Texas crop is projected at 14.5 million cwt, 21 percent below last year and the smallest since 1983. U.S. Rice Supplies Forecast Higher for 1997/98 U.S. rice supplies are projected to be 217.1 million cwt, up 5 percent from 1996/97, a result of the larger crop, steady imports, and larger beginning inventories. Beginning stocks on August 1 were reported at 27.1 million cwt, 8 percent above a year earlier. However, there were important differences in beginning stocks by grain type. Long grain rice stocks entering the 1997/98 marketing year were 14.1 million cwt, up 3.9 million from a year earlier despite a smaller 1996 long grain crop. A 15-percent drop in long grain exports in 1996/97 was behind the modest stock accumulation. In contrast, medium and short grain beginning stocks were 12.1 million cwt, down 2.2 million. Greater exports and domestic use in 1996/97 more than offset a larger 1996 medium grain crop. The 1996/97 ending stocks-to-use ratios further illustrate differences in the supply and demand situation by grain type. For long grain, even with the increased stocks, the ratio was quite low at 11.9 percent. Yet for medium/short grain the ratio was a somewhat higher 19.8 percent. Thus, supplies of long grain rice will likely remain tight during much of the 1997/98 marketing year. Imports for 1997/98 are projected to be a record 10 million cwt, just barely above 1996/97. Although still a small portion of total U.S. rice supplies (less than 5 percent in 1997/98), imports have been increasing steadily for the past 16 years. Almost 75 percent of U.S. rice imports are jasmine rice from Thailand and most of the remainder is basmati rice from Pakistan and India, varieties that currently can not be grown in the United States. In the last 4 years Vietnam has exported some small quantities of long grain milled white rice to the United States, while Italy has been a long-time supplier of very small shipments of arborio rice, a high-quality medium grain rice. Solid Increase in Exports To Pull Total Use Higher for 1997/98 Total U.S. rice use, including exports and domestic use, is forecast at 190.9 million cwt in 1997/98, up almost 7 percent from a year earlier but still below the 1994/95 record of 199.6 million. Accounting for much of the increase is a 9-percent rise in exports to 83 million cwt. Continued growth in the domestic market accounts for the remainder. Total domestic disappearance (including residual--or unreported loss) is projected to account for almost 57 percent of use, nearly unchanged from a year earlier. Long grain rice's share of total use in 1997/98 is projected at 70 percent, up from 66 percent a year earlier, and is largely due to a projected 18-percent rise in long grain exports. Medium grain's share is projected smaller in 1997/98 due to smaller medium grain exports and no growth in domestic use. A substantial portion of medium grain domestic use is in processed foods like cereal and beer. Current high rice prices limit greater rice use in processed foods. Falling prices for long grain milled rice--due to a reduction in the pace of exports plus the onset of a large long grain harvest-- reduced the long grain price premium over medium grain (as measured by offer price quotes for number 2, 4-percent broken long grain, f.o.b. Houston and number 1, 4-percent broken medium grain, f.o.b. California) to $22 per ton by late August. The premium had been $66 in the spring and early summer, as rising long grain prices faced stagnant prices for California milled rice. U.S. medium grain export prices dropped throughout the 1996/97 season in response to a larger 1996 crop, a record 1996/97 Australian harvest, and little buying interest beyond Japan's minimum access requirements and a few traditional importers. U.S. exports of long grain rice are projected up 18 percent in 1997/98 to 65 million cwt, the highest since 1994/95 when the U.S. crop was a record. In contrast, medium grain exports are projected to decline 16 percent to 18 million cwt. Medium grain exports are likely to rise in future years as Japan gradually raises imports and traditional buyers of U.S. medium grain rice increase purchases as well. Record Domestic Use Forecast Since 1990/91, the domestic market, which has nearly doubled in the past 15 years, has been growing an average of over 3 percent annually. U.S. domestic use (food, seed, and brewers' use) and residual (unreported use, processing losses, and estimating errors) is projected at a record 107.9 million cwt for 1997/98. Since 1990/91, food use has comprised 73 percent of total domestic use, while brewers' use, seed, and residual have averaged 15, 4, and 8 percent, respectively. Food use accounts for all of the growth in domestic disappearance, while the other categories have shown no sustained growth or have declined since 1990/91. A record 83 million cwt of rice are expected to be consumed as food in the United States in 1997/98. U.S. food use has grown at an annual rate of 4 percent since 1990/91, and its share of domestic use has risen from less than 70 percent in 1990/91 to a projected 77 percent in 1997/98. USDA's 1997 long-term forecasts indicate that food use will grow at a somewhat slower 2 to 3 percent into the next century. While changing culinary preferences of the U.S. population toward grain-based foods have spurred some of the growth, much of the expanded food use is due to large increases in the Asian and Hispanic segments of the U.S. population that have occurred over the last two decades. Per capita consumption of rice by Asian- and Hispanic-Americans far exceeds the U.S. average. A large and growing share of this consumption, however, has been supplied by imports of the preferred aromatic rices such as Thai jasmine and basmati from India and Pakistan. Projected total rice imports of a record 10 million cwt, just barely above imports in 1996/97, are expected to account for 12 percent of food use. Brewers' use of rice, projected at 15.4 million cwt, is unchanged from 1996/97 and remains below the 1995/96 and 1988/89 peaks of 15.6 million. Principal reasons for no long term growth include lower per capita beer consumption--partly due to an aging U.S. population and greater health consciousness that has increased demand for "lite" beers (that use less rice) and recent high rice prices. These factors will likely limit any expansion in brewers' use of rice in the near future. Rice seed use in 1997/98 (for planting the 1998 crop) is estimated at 4 million cwt, unchanged from 1996/97. Seed use is totally dependent on the number of acres expected to be planted. U.S. Export Market Share Projected Up in 1998 Due to the diversity of cropping seasons, marketing years, and milling rates, international rice trade is measured on a calendar year, milled-equivalent basis. The U.S. calendar year export forecast for 1998 is 2.8 million tons, up from 2.4 million this year and more than 2.6 million in 1996, but still below 1995's record of almost 3.1 million. The U.S. share of world trade is forecast at almost 14.6 percent in 1998, up from 13.1 percent this year, because U.S. exports are expanding at a faster pace than total trade. On a marketing year basis, 1997/98 U.S. rice exports are projected at 83 million cwt (rough basis) up 9 percent from last year's 76.4 million but well below the record 98.9 million cwt in 1994/95. Larger expected U.S. rice supplies this season and lower prices are behind the expanded trade projection. Latin America, the Middle East, Europe, and Japan are expected to remain important markets for U.S. rice. Canada remains a steady U.S. market, expanding slightly. Rough rice exports are expected to rise almost 20 percent to 15 million cwt, but will still be below the 17.7 million exported in 1994/95, when unusually heavy buying by Brazil helped lead to record rough rice exports. Unlike most other rice exporting countries, the United States services a large, high-valued domestic market that generally bids the U.S. price well above the international price. This price premium is most often measured by the difference between offer price quotes for U.S. number 2, 4-percent broken, milled long grain rice, f.o.b. Gulf ports, and Thailand 100-percent grade B, milled long grain rice, f.o.b. Bangkok. For November 1997, the U.S. export price premium for high-quality long grain rice was $160 per ton, and had risen each month after July as the Thai price plummeted. The premium was $114 in early July before the Thai prices began to decline. Throughout the 1996/97 market year the premium was well above the $5-$87 range that lasted from August 1994 to July 1996 and helped sustain record exports in 1994/95 and strong U.S. trade in 1995/96. Some strengthening of Thai prices in early December 1997--due to purchases by Indonesia and the Philippines--lowered the premium to less than $150 per ton. Traditionally, U.S. rice exports compete very well with a premium of $30 to $50. As the premium rises, price-sensitive markets, particularly in the Middle East, switch to lower cost sources. However, in recent years the premium has likely risen. The U.S. export market share has shifted to Latin America (where Thailand ships very little rice) and a larger portion is exported as rough rice (of which Thailand exports none). The premium is expected to remain wide in 1998 as expected high U.S. rough rice prices limit the downside potential for milled rice prices and demand for high-quality U.S. rice remains strong. A factor that may narrow the premium is the recent large purchases of Thai rice by Indonesia and the Philippines for late 1997 and early 1998 delivery. The purchases pushed Thai prices up $10-$15 a ton in early December. Greater rough rice exports, a larger long grain crop, and an already high premium will limit any increase in U.S. milled rice prices. Marketing Loan Gains in 1997 The marketing loan program was introduced in 1986 to improve the competitiveness of U.S. rice in international markets. During much of the early and mid-1980's, loan rates exceeded international prices and isolated U.S. rice from the market. Under the marketing loan program, loan repayment rates are linked to the prevailing world price of rice rather than the loan rate. This prevents the loan rate from acting as a price floor for U.S. rice in international markets. This year's outlook for lower international and U.S. export prices than in 1996/97 would produce income gains to producers only if foreign prices (represented by the weekly announced world price) fall below the announced loan rate of $6.50 per cwt. In early December the weighted announced world price was $7.78 per cwt, up from the an average of $7.66 in 1996/97. The rise in international prices that began in early summer 1995 raised the USDA-calculated world price (rough basis) above the loan rate, leaving no opportunity for marketing loan payments. For long grain rice, the announced world price has exceeded the loan rate since June 1995, and for medium and short grain since August 1995. While international prices did decline slightly in 1996/97, USDA long-term projections indicate the announced world price will continue to exceed the loan rate well into the future. U.S. Government-Assisted Exports Three types of government programs facilitate exports of U.S. rice. Under PL 480 and other food aid programs, the United States sells rice on concessional credit terms and donates rice to needy countries either bilaterally or through the World Food Program. Commercial sales under the Export Credit Guarantee Program (GSM-102) and the Intermediate Export Credit Guarantee Program (GSM-103) help private and government importers who have foreign currency constraints to purchase U.S. agricultural products. GSM-102 guarantees loans of 3 years or less, while GSM-103 guarantees loans of 3 to 7 years. Finally, the Export Enhancement Program (EEP) facilitates U.S. rice sales to markets where the U.S. competes with competitors subsidized exports. Total rice shipments under export credit guarantee programs peaked in fiscal 1989 when 826,000 tons were shipped, with Iraq importing 530,000 tons and Mexico 108,000 under GSM-102. An additional 355,000 tons were exported as food aid in 1989. Total government-assisted rice exports reached a near record 1.2 million tons in 1989, accounting for over 50 percent of U.S. exports. However, the United States has terminated its GSM-102 program for Iraq. In addition, tightened budgets, higher rice prices, and tighter supplies have reduced exports under food aid programs as well. As a result, shipments are smaller and food aid programs now account for a declining share of exports. For fiscal 1997, total program exports are estimated at 205,000 tons (89,000 tons in credit guarantees plus 116,000 tons for PL 480), or slightly more than 8 percent of total U.S. rice exports. Both total program shipments and share of total exports are near historic lows. In fiscal 1996, 420,000 tons of rice were exported under government programs, with about 182,000 tons going out under PL 480, nearly 215,000 tons shipped under GSM credit programs, and 23,000 tons shipped under EEP. This was about 15 percent of total U.S. rice exports that year, down from 17 percent a year earlier. Total program shipments accounted for over 36 percent of U.S. rice exports in fiscal 1992 and nearly 55 percent in 1985. The EEP program was originally intended to counterbalance subsidized exports by the European Union (EU). Thus EEP bonuses have traditionally been used to assist medium grain exports to countries bordering the Mediterranean Sea. Today, the EEP's purpose is to counterbalance subsidized exports from specified exporters, i.e., not just the EU. But with declining EU rice exports in recent years, the importance of EEP subsidies has diminished. There have been no rice EEP sales since August 1995 and no shipments since late 1995. Total EEP allocations are capped at 39,000 tons in 2001 in accordance with the UR-GATT agreement. However, this is not expected to become a major constraint for rice because most EEP monies are used to support wheat exports. In addition, access to rice markets gained through the UR-GATT are likely to be of greater longer-term benefit to U.S. rice. U.S. Stocks To Remain Tight U.S. ending stocks are projected at 26.2 million cwt in 1997/98, down 3 percent from a year earlier. Stocks as a share of total use are forecast at 13.7 percent, down from 15.1 percent a year earlier, and the second lowest since 1980/81. For long grain rice, 1997/98 ending stocks are projected to rise about 1 million cwt from a year earlier to 15.1 million cwt, a result of larger supplies. However, the greater use will result in a small decline in the long grain stocks-to-use ratio to 11.3 percent. In contrast, combined medium/short grain stocks are projected to decline 16 percent to 10.1 million cwt, primarily due to the smaller crop and beginning stocks. The smaller stocks reduce the stocks-to-use ratio more than 2 percentage points from a year earlier to 17.7 percent. The medium grain total use actually declines, largely driven by the 16-percent drop in exports. This is the third consecutive year that medium grain stocks and the stocks-to-use ratio have declined. Tight stocks of high-quality long grain rice relative to medium grain are expected to maintain the long grain price premium relative to medium grain in both the United States and international markets. This reverses the significant premium enjoyed by medium grain rice export prices during most of 1994/95 and 1995/96. The U.S. medium grain f.o.b. price lost its premium to long grain f.o.b. price in August 1996. International Outlook for 1997/98 International Export Prices Drop Sharply with Thai Devaluation Internationally traded prices for long grain rice began to weaken in the summer of 1997 after the devaluation of the Thai currency in early July. In addition, world trade slowed in late summer. International trading prices for long grain rice (Thai 100 percent, grade B, f.o.b. Bangkok) fell from around $335 a metric ton in early July to $259 by mid-November as the Thai baht continued to depreciate and Thai export business was confined chiefly to regular buyers. International prices briefly rebounded in August in response to expected purchases by Indonesia and the Philippines. But by late August prices began to decline again as no new major purchases occurred. Vietnam--a principal competitor of Thailand in much of the Asian import market--did not immediately match Thailand's price cuts. This allowed the Thai price premium--which was about $80 per ton in July--to almost disappear by September when Thai and Vietnam prices traded at nearly the same levels. From mid-September through October, Vietnam dropped its prices, giving Vietnam a $5 to $20 price discount most of the time since November. In early December, the Thai price rose $10 to $15 a ton as Indonesia and the Philippines made large purchases for late 1997 and early 1998 delivery. Exportable supplies became scarce in Vietnam by late November, allowing Vietnam's prices to strengthen in early December as well. The Thai main harvest in the north and northeast--about 60 percent of Thailand's annual production-- is now in full swing, increasing exportable supplies and likely limiting any additional price strength until after early 1998. In contrast to Thai prices, prices for similar type and quality U.S. long grain rice--No. 2, 4-percent brokens, f.o.b. Houston-- have remained steady at $419 per ton since mid-August 1997. Prices had been $463 during the spring and summer before dropping to $441 in July. A slowdown in world trade in the summer plus a substantial drop in international prices starting in late July account for much of the U.S. price drop. The current stagnant U.S. milled prices in the face of strong rough rice prices are due to a larger 1997 U.S. long grain crop, weak U.S. milled rice exports in August and September, and an already extremely large price difference with Thai trading prices. However, several factors appear likely to limit any further downward movement in international indica prices. First, weather-related difficulties associated with this year's El Nino will lead to substantial increases in imports from 1997 levels by Indonesia and the Philippines. The planting of Indonesia's main 1997/98 crop was delayed substantially due to severe dryness and devastating burning across much of the rice growing area this summer and fall. The planting delay means the main crop harvest will be later than normal, forcing the country to draw down stocks sooner and import before previously expected. Greater projected trade for the Philippines is due to a delay in imports originally expected in late 1997--with some imports due to the drought damage to the 1996/97 crop--being shifted to early 1998. International trading prices for high-quality japonica rice have also declined from levels reached in late 1995 and early 1996. Prices for high-quality California medium grain rice (No. 1, 4-percent brokens, f.o.b.) have remained at $397 a ton since mid-February after dropping from $419 in early February and from $430 in mid-January. The decline was primarily due to an 11-percent increase in the 1996 U.S. medium grain crop from a year earlier and a record medium grain harvest last spring by Australia. Factors accounting for current stagnant medium grain export prices are California's record 1997 rice crop--of which over 95 percent has been medium grain in recent years--and lower expected U.S. medium grain exports in 1997/98. Japan is California's largest international market and Japan's purchases have a major impact on California rice prices. Through November, the United States had supplied about 32 percent of Japan's regular minimum access purchases for Japan's 1997/98 fiscal year. In the past 2 years, the United States supplied over 45 percent. Further depressing prices has been the fact that the United States was not awarded any of South Korea's 1997/98 minimum access purchases for the third consecutive year. When the GATT was signed, many market analysts believed the United States would receive some of the South Korean business, but it has yet to ship any rice to South Korea. Japan must complete the remainder of its 1997/98 GATT-mandated purchases by March 31, 1998, and the United States is expected to supply a major share of this rice, likely supporting the California price. Japan's total GATT-mandated purchases for the 1997/98 fiscal year are set at over 530,000 tons (milled basis). For 1997/98, world rice production is projected to be a record 382.7 million tons (milled basis), up almost 3.8 million tons from the 1996/97 crop. World consumption is projected at 381 tons, a record and up 5.1 million tons from 1996/97. With production exceeding consumption by 1.7 million tons, ending stocks are projected to rise 3 percent to 54.9 million tons. The offsetting combination of larger global stocks and record use result in a stocks-to-use ratio of 14.4 percent, slightly above a year earlier, but still low enough to make prices sensitive to any production shortfall in a major consuming or producing country. World Trade Projected To Rise in 1998 World trade in 1998 is projected to be 19.2 million tons, up 5 percent from this year and approaching the 19.5 million traded in 1996. However, trade remains below the 1995 record of 21 million tons. The increase is primarily the result of weather related-difficulties --particularly in parts of Latin America, Indonesia, and the Philippines--that are expected to increase demand for imported rice in 1998. Since 1995, world rice trade has been higher than at any previous time. Factors accounting for much of the greater trade include higher incomes in much of the developing world, more open markets worldwide, and slower production growth in some key importing countries. Accounting for the bulk of greater imports in 1998 are China, Indonesia, Iran, the Philippines, and Peru. Their combined imports are projected to increase from 3.2 million tons in 1997 to 5.1 million. Smaller increases are projected for Japan, Cote d'Ivoire, and Senegal. Although world stocks are projected to rise 3 percent to 54 million tons in 1997/98, pushing the stocks-to-use ratio slightly up to 14.4 percent, the supply situation will remain sufficiently tight for international prices to continue to be very sensitive to any production shortfall in a major exporting or consuming nation. Major Exporters Thailand is expected to remain the world's largest rice exporter with 5.25 million tons projected for 1998, up from 4.9 million in 1997 but still below the 1989 record of 6 million tons. Thailand's 1997/98 crop is projected at 21.2 million tons (rough basis), up 2 percent from last year's crop but below the record 21.8 million of 1995/96. Thailand's 1996/97 main season crop was reduced due to lower yields caused by flooding. Some first-crop damage was made up by larger second-crop plantings. Thailand traditionally competes with the United States in certain high quality long grain rice markets--primarily in the Middle East--and with Burma, India, Pakistan, and Vietnam in various intermediate- and low-quality long grain markets. Burma, Pakistan, and Vietnam typically sell intermediate- and low-quality rice at significant price discounts to Thailand. This price pressure from the low-quality market prevents Thailand's price structure from inflating, thus contributing to Thailand's traditional price discount to U.S. rice in the high-quality market. Recent devaluations of the Thai currency have somewhat reduced the Thai price premium with Vietnam and Pakistan. Burma is currently exporting virtually no rice. Vietnam, the world's second largest rice exporter, is projected to produce 27.3 million tons (rough basis) in 1997/98, unchanged from the 1996/97 record, with area and yield nearly the same. Vietnam's exports are projected to increase 250,000 tons to 3.5 million, a result of another large crop and the government's decision to increase the export quota in 1997. Vietnam produces three major rice crops a year. The summer-autumn crop accounts for about 25 percent of annual production and is harvested during September and October. The tenth-month crop accounts for 27 percent of average production and is harvested during December and January. This crop is declining in area and is the lowest yielding of Vietnam's three crops. The largest rice crop, the winter-spring crop, accounts for nearly half of total production and is harvested in April and May.1/ The winter-spring crop has expanded 75 percent since 1988/89 and has the highest yield of the three crops. 1/ The harvest dates are for production occurring in southern Vietnam. Harvest dates differ in the north, but most rice production occurs in the south. The third largest rice exporter is India. For 1998, India is projected to export 1.75 million tons, unchanged from 1997 but 58 percent below 1995's record 4.2 million. India is projected to produce a 1997/98 crop of 122.3 million tons (rough basis), a record and up more than 1.4 million tons from 1996/97. Like Pakistan, India exports both a premium-priced basmati to higher income countries as well as low-quality non-aromatic long grain milled rice to developing countries. Principal markets for basmati are the Middle East, the EU, and the United States. Russia, South Africa, and the Middle East are major exports markets for India's non-basmati rice. High domestic rice prices and transportation costs, stiff price competition with Vietnam and Pakistan in low- and medium-quality markets, and an end to government efforts to release rice from stocks to export markets have caused the significant drop in India's rice exports since 1995 and 1996. India is currently priced out of most low- and medium-quality markets, and typically sells rice at higher prices than Vietnam or Thailand. However, India still holds large stocks of generally low-quality rice that could be exported if world demand and prices were high enough. Pakistan is projected to export a record 1.7 million tons of rice in 1998, up slightly from this year. Pakistan's crop is projected at almost 6.5 million tons (rough basis), a record but up barely 1 percent from 1996/97. Pakistan exports both high-quality basmati rice--which sells at a substantial premium in high-income markets--as well as intermediate- and low-quality non-aromatic long grain rice to developing countries where Pakistan competes with Thailand and Vietnam. About a third of Pakistan's production is basmati. West Africa, Bangladesh, Iran, Indonesia, the United Arab Emirates, and Saudi Arabia were leading export markets for Pakistan in 1995/96. The government of Pakistan is actively trying to increase rice production through price incentives, timely availability of inputs, and technical assistance. Burma's 1997/98 rice crop is projected at 16.6 million tons, up nearly 7 percent from 1996/97. The larger crop is behind the projected increase in Burma's exports to 100,000 tons in 1998, up from 25,000 tons this year. Poor quality seed, high-priced and unavailable inputs, and weather problems account for the drop in production in 1996/97. From 1961 to 1966, Burma was one of the world's leading rice suppliers with exports averaging almost 1.5 million tons a year. However, from 1967 to 1989 Burma's exports declined to an average of only 542,000 tons. Exports declined to a then-historic low between 1990 and 1993, averaging only 193,000 tons. Burma's exports did rebound in 1994 and 1995, exceeding 600,000 tons annually, but plummeted to 265,000 tons in 1996. Trade is strictly controlled by the government in Burma. Burma's marketing and milling infrastructure remains antiquated, however, and is unlikely to improve in the near future. As a result, Burma continues to export low-quality, but competitively priced, long grain rice. Historically, most of Burma's rice exports are 25-percent brokens with the remainder being parboiled and high-quality long grain rice. Limited supplies of irrigation water are behind an expected contraction in Australia's planted area for its 1997/98 crop, resulting in a more than 15-percent drop in production from the 1996/97 record to 1.2 million tons. The smaller crop is the primary factor driving a 50,000-ton drop in Australia's projected exports to 650,000 tons in 1998. Australia's rice farmers plant in October and harvest in March-May. The rice crop is grown in New South Wales (NSW) and Queensland, although NSW grows over 96 percent of the rice crop. Australia produces and exports primarily high-quality japonica rice and has captured a substantial share of the Japanese market since the WTO-required imports were first purchased in 1995/96. Papua New Guinea is another major export market for Australian rice producers. Limited supplies of water for irrigation constrain any significant expansion in Australia's rice production. South American's largest rice exporters, Argentina and Uruguay, are expected to continue to focus their efforts on the substantial Brazilian rice market under the special trade arrangements afforded them by their membership in the MERCOSUR trade agreement (which includes Argentina, Brazil, Paraguay, and Uruguay). Argentina is projected to produce 1.2 million tons in 1997/98, unchanged from this year's record, although area continues to rise. Similarly, exports in 1998 are projected to remain at last year's record 600,000 tons. Argentina's exports have nearly tripled since 1994, with most going to Brazil. Uruguay's rice exports are projected to rise 25,000 tons in 1998 to a record 675,000, the fourth consecutive year of record exports. Production in 1997/98 is projected at almost 1.1 million tons, up more than 4 percent as area continues to expand. Like Argentina, Uruguay's rice sector is expanding to meet greater trade within MERCOSUR, mostly larger imports by Brazil. Major Importers Indonesia is projected to be the largest importer in 1998, with 1.5 million tons, double this year's purchases. The substantial increase is primarily due to weather-related difficulties associated with this year's El Nino. An El Nino is a periodic warming of the tropical Pacific that often causes drought in parts of Asia and East Africa, as well as drought and flooding in parts of South America. Indonesia's 1996/97 third crop--harvested in the summer--was damaged by drought. In addition, the drought that began in June postponed the planting of Indonesia's main 1997/98 crop. The delayed harvest of the main crop means stocks will be drawn down sooner than previously expected, requiring Indonesia to import rice earlier. In addition, with a presidential election scheduled for March, it is unlikely the government of Indonesia would allow rice prices to rise substantially this winter. Indonesia was the world's leading rice importer during the 1970s, averaging over 1.3 million tons annually. During the mid-1980s, the Indonesian government was able to temporarily end nearly all rice imports through a program of national rice self-sufficiency. However, continuous area losses from Java's prime irrigated paddy fields and rising national consumption (projected to exceed production for a sixth consecutive year) appear to have ended Indonesia's period of self-sufficiency. In 1995, Indonesia imported slightly over 3 million tons of rice, making it the largest importer of rice ever. China's 1997/98 rice crop is projected at a record 195.7 million tons, up just slightly from 1996/97's bumper crop. This increase results from a stronger early crop and favorable weather for both the single and the late crop. Higher yields account for the increased production, as area remains nearly steady in 1997 after rising 2 percent in 1996 in response to favorable prices. In 1995 China produced 185.2 million tons of rice on 30.7 million hectares, reversing 2 years of declining production and a 4-year trend of declining area. In 1996 area rose again, and together with higher yields produced a 195-million-ton crop, second only to the 1997 crop. However, it is not yet clear whether recent bumper crops signal a long-term increased internal production response to high domestic prices, and thus lower expected future imports. China's 1998 imports are forecast at 1 million tons, double this year's imports. Most of China's imports are fragrant rices--mostly from Thailand--that are bought by high-income urban consumers. China is virtually self-sufficient in rice, given the current policy environment. In 1995 China became a net importer of rice for the first time since 1989. Imports were nearly 2 million tons, while exports were a minuscule 32,000 tons (the smallest level in the USDA database that began in 1960). This was a dramatic change from 1990-1993, when China's annual rice exports averaged 830,000 tons while imports averaged less than 100,000 tons. And while China imported 700,000 tons of rice in 1994, its exports exceeded 1.5 million tons. A net importer in 1995 and 1996, China was a net exporter again in 1997. For 1998, the 1 million tons projected for imports will match exports. China's government does not appear willing at this time to allow the country to depend on the world market for any substantial portion of its rice needs. Greater rice imports would allow some farmers to shift to higher priced horticultural crops. Traditionally, China has been an important net exporter of rice, exporting low-quality rice to African and Middle Eastern markets, and importing high-quality long grain rice. However, in 1994, China's rice trading pattern changed dramatically when exports jumped. Exports of over 1.5 million tons included 900,000 tons of japonica to Japan, signaling China's tremendous potential as a supplier of japonica rice to the newly opened markets of Japan and South Korea. These trade levels are modest compared with the level of China's production and consumption. Any change in China's ability to export rice has important implications for world rice trade. Japan and South Korea have agreed to open their substantial rice markets to limited imports in accordance with minimum access criteria of the UR-GATT. Both countries have extremely strong preferences for japonica varieties for table consumption. The United States is expected to compete with Australia--and to lessor extent China, Italy, and Egypt--for the medium grain exports into these newly opened East Asian markets. However, Japan and South Korea have large rice processing capacities that would permit the importation of long grain rice, opening the import competition to other potential suppliers. Japan's minimum access criteria will rise from nearly 380,000 tons (milled basis) in 1995/96 to 758,000 tons by 2000/01. South Korea's minimum access amount is much smaller, rising from only 57,000 tons (milled basis) in 1995/96 to 205,000 tons by 2004/05. Japan is projected to produce a crop of 12.4 million tons (rough basis) in 1997, following 12.9 million last year. Japan has produced fairly large crops in recent years, especially its 1994 bumper crop of 15 million tons. In addition, Japan must import more than 530,000 tons before the end of its 1997/98 fiscal year (April-March), and nearly 607,000 tons the following fiscal year in accordance with UR-GATT minimum access import criteria. Fairly large crops since 1994 and a steady rise in imports have created substantial stocks in Japan, with 1997/98 ending stocks projected at over 3 million tons and the stocks-to-use ratio exceeding 30 percent. The government of Japan has announced programs to reduce producer price incentives and increase area diversions for the 1998 crop. So far, virtually none of the WTO-required regular minimum access imports has been released to consumer markets and most remains in storage. South Korea's rice area is projected at 1.05 million hectares in 1997, nearly identical to a year earlier but down slightly from 1995. Prior to this year, rice area in South Korea had declined 9 years in a row. The 1997 crop is estimated at almost 7.4 million tons (rough), up over 2 percent from last year and 15 percent larger than 1995's weak crop. South Korea's rice consumption has been trending downward since 1985, and at 5 million tons it will fall 450,000 tons short of milled production, allowing stocks to almost double to more than 1.1 million tons. In September, South Korea purchased its entire 1997/98 WTO-required imports, with China supplying more than 65,000 tons of medium grain rice and Thailand supplying about 20,000 tons of long grain rice as the remainder. South Korea purchased its entire 1996/97 GATT-mandated imports of 71,260 tons of brown rice from China. In 1995/96, South Korea purchased all of its 57,000 UR-GATT minimum access imports from India--all long grain likely used for industrial purposes. North Korea is projected to import 250,000 tons in 1998, down from 300,000 this year and well below the record 683,000 in 1995. Severe flooding hurt production in 1994 and 1995, and the country suffered from drought in 1996. These factors accounted for the for large-scale imports. For 1998, production is projected to rise more than 15 percent to 2.2 million tons, a more typical level. Most of North Korea's rice imports will be concessional in nature. If production problems continue, food imports (including rice) could again grow. North Korea has experienced a severe contraction in rice production from the late 1980s to the present. Existing data suggest that during the 1980s North Korea's rice production averaged 3 million tons (rough basis) on 642,000 hectares, with an average paddy yield of nearly 4.7 tons per hectare. From 1990 to 1996 rice production averaged 2 million tons on 594,000 hectares with paddy yields of less than 3.4 milled tons per hectare. Bangladesh is projected to produce a record crop of nearly 27.8 million tons (rough) in 1997/98, up slightly from last year's harvest. The increased production is expected to limit Bangladesh's import needs to just 100,000 tons in 1998, unchanged this year but substantially down from 700,000 tons in 1996 and nearly 1.6 million in 1995. Although the 1997 harvest is expected to be normal and 1997 and 1998 imports minimal, Bangladesh's constant population pressure drives an upward trend in consumption and leaves little room for error. Bangladesh has a preference for parboiled rice, although price is a limiting factor and may force imports of low-quality milled long grain if cheap parboiled is not available. The Philippines is projected to produce 11.2 million tons of rice in 1997, unchanged from last year's record, with area and yield nearly the same. Despite the good production outlook, the Philippines' food situation remains tight. Consumption, projected at 8.4 million tons (milled), is expected to exceed milled rice production by over 1 million tons. This marks the seventh consecutive year that consumption has exceeded production. The Philippines is projected to import 1 million tons in 1998, up from 750,000 tons this year. The EU is projected to import 700,000 tons in 1998, up from 650,000 tons this year. The EU 1997 harvest is projected to drop 2 percent from last year's record of more than 2.5 million tons, driving much of the import growth. An almost 4-percent drop in Italy's rice production to less than 1.4 million tons accounts for most of the EU reduction. The EU imports indica type rice-- with the United States the largest supplier--and basmati from India and Pakistan. The EU exports japonica rice. The Middle East is traditionally the world's strongest market for high-quality rice--mostly parboiled, premium long grain varieties, and basmati--led by Iran, Iraq, and Saudi Arabia. Rice imports are projected to rise 6 percent in 1998 to 3.4 million tons. A 250,000-ton increase in Iran's imports to 1.25 million accounts for most of the increase. Sub-Saharan Africa imports (including the Republic of South Africa) are projected at almost 3.1 million tons, up slightly from this year but below the nearly 3.7 million imported in 1996. In addition to larger commercial sales, the higher international prices since the summer of 1995 imply lower program exports to Sub-Saharan Africa for exporting countries with fixed-budget program amounts--such as the United States--than in previous years. With the exception of the Republic of South Africa, Sub-Saharan Africa has traditionally been a low-quality rice market due to weak economies and limited foreign exchange. Production difficulties in certain countries, rising populations in the region, and steady income growth are responsible for a more than 9-percent increase in Latin America's (Central America, the Caribbean, and South America) projected rice imports in 1998 to more than 2.7 million tons. Most Latin American rice importers are price-conscious buyers who prefer high-quality rice, but will substitute for cheaper intermediate- and low-quality rice when international prices rise. For South America, the bulk of milled rice imports are from other South American countries--mainly Argentina and Uruguay. Regional trading preferences and location advantage account for much of the intra-regional buying. For rough rice imports, the United States is a main supplier to both South America and Central America. In addition to a location advantage over the Asian exporters, the United States is one of very few rice exporting countries that allows rough rice exports. In fact, none of the Asian exporting countries ship rough rice. Argentina does export some rough rice, but almost exclusively to Brazil. Also, most South American importing countries provide lower tariffs on imported rough rice than on milled rice. Brazil is Latin America's largest rice import market. Brazil's rice imports are projected at 1 million tons in 1998, unchanged from this year, making Brazil again one of the world's largest importers. Brazil is projected to produce a total crop of 9.6 million tons (rough basis) in 1997, down slightly from this year and below the 10 million tons harvested in 1995. Brazil's production peaked in 1987/88 and production has not been able to match consumption gains. In fact, for 1997/98 Brazil's consumption is projected at 8 million tons, well above the 6.5-million-ton (milled basis) crop expected. Because of special trade arrangements under the MERCOSUR trade agreement, Argentina and Uruguay dominate the Brazilian market. Combined exports for Argentina and Uruguay are projected at almost 1.3 million tons for 1998, up from 1.25 million in 1997. The two countries together exported just 611,000 tons in 1994. Thus, the MERCOSUR agreement appears to be promoting significant expansion in each country's respective rice sector. Rice Situation and Outlook Reporting Format Changes Because of resource constraints, ERS will issue the Rice Outlook only six times in 1998: January 14, April 10, May 13, July 13, August 13, and November 12. The report had been issued monthly since January 1995. The single Rice Situation and Outlook Report Yearbook containing special articles, a market summary, and tables of historical statistical information will continue to be released every year. The summary of the 1998 issue will be released on September 1, 1998. The Rice Outlook reports are available electronically at 4:00 p.m. the first working day following the release of the World Agricultural Supply and Demand Estimates (WASDE) report. They contain brief descriptions of domestic and international market conditions and outlook, as well as key tables of statistical information. The Rice Outlook reports are available at no charge and may be accessed using any of the following electronic communication media. o World Wide Web USDA's crop and livestock reports and economic situation and outlook reports (including the Rice Outlook) are available on the USDA Economics and Statistics System maintained by Cornell University's Albert R. Mann Library. Access reports at http://www.econ.ag.gov/, select Products and Services, then Periodicals. o E-mail Report subscriptions are also available through e-mail from the USDA Economics and Statistics System. For information on how to subscribe, send an e-mail to usda-reports@usda.mannlib.cornell.edu with no subject and the word "lists" as the body (entered without the quotes). Ordering instructions will be sent by return e-mail. Using the instructions, subscribers may choose from more than 70 scheduled reports, including crop, livestock, and price forecasts from USDA's National Agricultural Statistical Service, situation and outlook reports from USDA's Economic Research Service, and the World Agricultural Supply and Demand Estimates report issued by USDA's World Agricultural Outlook Board. For assistance with Internet delivery or e-mail subscriptions, e-mail help@usda.mannlib.cornell.edu or call 607-255-5406. o ERS AutoFAX Use the telephone attached to your FAX machine to call 202- 694-5700. Follow the voice prompts and ask for document number 12461 for the latest edition of RICE OUTLOOK. Document 12400 is a directory of Rice documents available on AutoFAX. If you are looking for other material and don't know the document number, please request document number 00012 for a directory of situation and outlook material. For more information about this service, including document ID numbers, call 202-694-5050. NOTICE TO ERS AUTOFAX USERS: To accommodate the transfer of AutoFAX materials to new and improved technology, THE DOCUMENT NUMBERING HAS CHANGED!! Please refer to the following directory of AutoFAX documents for the new listings. RICE OUTLOOK AND ANALYSIS: DIRECTORY OF AUTOFAX DOCUMENTS Document ID# Title (No. of pages) Date of last update Current Outlook: 12400 Directory of Rice AutoFAX Documents (1) Dec '97 12461 Current monthly rice outlook (10) Updated six times/year 12462 Current WASDE S&D tables: U.S. and World (2) Updated monthly 12463 Current FAS world production and trade tables (5) Updated monthly 12466 List of supporting USDA agencies (4) Dec '97 12467 List of supporting USDA publications (8) Dec '97 Analytical Reports: 12480 Long-Term U.S. Agricultural Baseline Projections: Rice (7)Feb '97 12481 Long-Term World Agricultural Baseline Projections: Rice (18) May '97 12482 Effects of the North American Free Trade Agreement on U.S. Agricultural Commodities: Rice. Includes key NAFTA provision (7) Mar'93 12483 Effects of the Uruguay Round Agreement (GATT) on U.S. Agricultural Commodities: Rice (7) Mar '94 12484 1990/91 Rice Distribution Survey Preliminary Results, A (5) Apr '93 12485 1990/91 Rice Distribution Survey Preliminary Results, B (8) May '93 NOTE: The following historical data tables will be updated every year when the ERS Rice Yearbook is released. Rice Historical Data Tables: 12470 U.S. Supply and Use Tables, Rice (4) [Dec '97] 12471 U.S. Millings, Milling Rates, and Rice Stocks (2) [Dec '97] 12472 U.S. and State Rice Area, Yield, and Production Tables (6) [Dec '97] 12473 U.S. Program Provisions and Parameters (2) [Dec '97] 12474 U.S. Rice Prices (7) [Dec '97] 12475 U.S. Rice Export Tables (2) [Dec '97] 12476 World Rice Tables (3) [Dec '97] 12477 International Rice Prices (10) [Dec '97] Special Article Projecting the Season Average Price for U.S. Rough Rice Nathan W. Childs and Paul C. Westcott Abstract: The statistical relationship between various measures of U.S. rough rice prices and the stocks-to-use ratio is used to develop 3 equations projecting annual U.S. rough rice prices. Two equations project a ratio of the U.S. rough rice price to an international trading price--USDA's announced world price and the f.o.b. price for 100 percent Thai Grade B milled rice. The third projects rough rice prices directly. All three equations project the 1997/98 season-average U.S. rough rice price will remain strong. Keywords: Rough rice, farm prices, world price, stocks-to-use ratio Increased market orientation in the 1996 farm act has raised the need for information regarding U.S. rough rice price projections. With much greater planting flexibility and with government payments decoupled from production decisions, farmers today must weigh expected market returns from various cropping choices prior to planting to maximize net returns. In addition, millers, exporters, and processors all have a strong need to project rough rice prices for planning. Previous analyses have modeled the relationship between farm prices and ending stocks for corn (Van Meir; Westcott, Hull, and Green); wheat (Westcott, Hull, and Green); and rice (Lin, Novick, and Livezey; Hoffman, Livezey, and Westcott). Ending stocks of annual storable commodities, such as rice, reflect the relationship between supply and use. If total use is greater than supply, farm prices tend to rise as ending stocks decline. On the other hand, if supply is large relative to use, prices tend to decline as stocks accumulate. Because total use of rice has increased nearly 50 percent since 1985/86, the stocks-to-use ratio is a better predictor of rice prices than absolute stock levels. As an explanatory variable, the stocks-to-use ratio has been shown to be an extremely powerful indicator of the combined impact of many supply and demand factors on a market. In the past, government price supports tended to limit price reductions. With rice price supports set high through the mid-1980's, the effective price floor was the loan rate. However, since the creation of the rice marketing loan in April 1986, the price-supporting feature of the loan program has been removed and U.S. rice has tended to be priced relative to the world market price, with a premium reflecting higher U.S. quality (figure A-1). U.S. rice is typically priced well above average world trading levels due to higher quality attributes such as consistency, appearance, timeliness of shipments, packaging, and reliability. U.S. rough rice prices have been well above both the loan rate and loan repayment rate for the past 2 years, indicating a strong premium above global rice prices. In addition, USDA's long-term baseline model projects U.S. rough rice prices will remain substantially above the loan rate and the world price throughout the entire 10-year forecast period. This article presents three statistical relationships between U.S. rough rice prices and the stocks-to-use ratio. The resulting equations are used to project the U.S. season-average rough rice price at different stocks-to-use ratios. Forecasting the all rice price is part of the ongoing USDA forecasting activities and is a major objective of this study. The equations provide a means for assuring consistency between rice sector forecasts for supply and demand conditions and prices. Various measures of rough rice price are used in the statistical relationships. Two of the equations forecast a ratio of the U.S. farm price to an international price--either USDA's announced world price or the f.o.b. price for Thai Grade B long grain milled rice--essentially modeling the domestic rice price premium. The third model projects the season-average farm price for rice directly. All three equations were derived using annual data from 1986/87 through the 1996/97 August-July crop year. The beginning of the sample period coincides with the implementation of the marketing loan program for rice as well as other provisions of the 1985 farm act. Essentially, the 1985 farm act increased market orientation in agriculture, making U.S. rice more competitive in world markets. Besides creating the marketing loan program, the 1985 act lowered target prices and loan rates and retained other supply control measures such as acreage reduction programs. An examination of farm prices and stocks-to-use ratios from 1976/77 to 1996/97 indicates a major shift in the relationship after 1985/86 (figure A-2). Essentially, for any given stocks- to-use ratio, rough rice prices were higher prior to 1986 than after. This is primarily due to the implementation of the marketing loan in the 1985 farm act that quickly eliminated government-held stocks and most price supporting aspects of the commodity loan programs. Prior to 1986, when farm prices were less than the loan rate, the loan rate acted as a price floor, preventing U.S. rice from entering market channels and instead remaining in government storage. The marketing loan program kept the loan rate from acting as a price floor by allowing farmers to repay CCC loans at a lower price when world prices are below loan levels. This makes U.S. rice exports more competitive in international markets. Also, instead of stocks being isolated from the marketplace, the marketing loan program kept supplies available for use. As a result, for any given stocks-to-use ratio, U.S. rough rice prices would be lower than previously. Changes in the Rice Market The U.S. and international rice markets have undergone several important changes in the past 10-15 years, with the bulk occurring since 1986/87. These changes all have implications for U.S. rough rice prices. The seven major changes are: o An increase in share of total rice use accounted for by the domestic market since 1980. o A general decline in U.S. ending stocks and stocks-to-use ratios for rice since 1986/87. o Strong growth in U.S. rough rice exports after 1990. o A much higher level of world rice trade since 1995. o An overall decline in the domestic and international demand for the low quality portion of U.S. rice--as measured by age, percent brokens, foreign material present, and for some uses, variety--since the early 1990's. o Much greater planting flexibility after 1995/96. o Sustained higher U.S. rough rice prices since 1995/96. Domestic Use Expands Since 1980/81, the domestic market has accounted for a growing share of total disappearance of U.S. rice. In 1980/81, exports of 91.4 million cwt (rough basis) accounted for 59 percent of total disappearance. By 1990/91, exports' share had declined to 44 percent, and dropped to less than 42 percent in 1996/97. Two factors account for this shift in share. First, exports have shown no long-term growth since 1980/81. And no long-term expansion is projected in USDA's baseline. Second, the domestic market has shown virtually steady annual growth for about 20 years, with the rate exceeding the growth rate of the population. Demographic changes, health and nutrition benefits, and effective marketing are behind the strong domestic growth. Because domestic prices are typically higher than export prices, a larger portion of the market has shifted to the higher priced and better quality domestic outlets. In effect, the higher priced domestic market bids the rice away from the lower priced international market. In addition, food use--which historically commanded a higher priced rice than rice used for beer production--has accounted for the bulk of the domestic expansion. However, rising quality standards for brewers' use since the early 1990s have reduced much of the price differential with rice destined for food use. Stockholding Declines U.S. rice stocks totaled 77.3 million cwt--with 43.6 million in CCC inventory--at the end of the 1985/86 marketing year, yielding a record high stocks-to-use ratio of 62.1 percent. But just one year later ending stocks had declined to 51.4 million cwt and the stocks-to-use ratio had dropped to 31.7 percent. By 1986/87 government-held stocks dropped to less than 9 million cwt. The enactment of the marketing loan in April 1986 was primarily responsible for the large drop in government stocks. U.S. rice stocks had begun to rise after 1980/81, as world import demand and U.S. exports shrank, and farm prices declined. With farm prices below the loan rate in some years, government stocks expanded annually from 1981/82 to 1984/85--as farmers forfeited rice to the government under the loan programs--and remained high in 1985/86. In contrast, since 1987/88 government-held stocks have never exceeded 400,000 cwt and have been zero since 1995/96. The stocks-to-use ratio has declined since 1986 as well, dropping to 20.6 percent in 1987/88 and to 15.9 percent a year later. For 1996/97, the stocks-to-use ratio was 15.1 percent and is projected to be 13.7 in 1997/98, the second lowest since 1980/81. With stocks and stocks-to-use ratios well below earlier levels, only small supplies exist to cushion any price adjustment if demand increases--most likely from international sources--or if supply decreases because the United States harvests an unexpectedly small crop. U.S. Rough Rice Exports Expand U.S. rough rice exports have shown strong growth, especially since 1990/91. From 1977/78 through 1989/90, rough rice exports averaged less than 4 percent of U.S. rice exports. In contrast, since 1990/91 rough rice has accounted for 11.5 percent of U.S. rice exports. And since 1995/96, over 14 percent of U.S. rice exports have been rough rice. The 1997/98 share is projected at 18 percent. The growth in rough rice exports is primarily due to greater demand from Latin American countries whose production can not keep up with increasing demand. Mexico has been the largest steady buyer, with rough rice purchases expanding from 37,301 tons in 1990/91 to 320,314 in 1996/97. While once virtually self-sufficient in rice, Mexico now imports half its rice consumption. Guatemala, El Salvador, Honduras, and Costa Rica regularly purchase U.S. rough rice. In addition, some South American countries--such as Ecuador, Peru, Colombia, Venezuela, and occasionally Brazil--will import U.S. rough rice when their domestic production falls short of demand. These Latin American countries import rough rice to allow their mills to fully utilize capacity. The United States is one of very few countries that allows rough rice to be exported. U.S. milled rice is not competitive with Asian rice in most South American markets. Most Latin American countries have lower tariffs for rough rice than for milled rice. As such, the expansion in rough rice exports has allowed the United States to maintain exports at a substantially higher level than if only milled rice were exported. Turkey has typically bought rough rice from the United States over the past decade, but the bulk of its imports are milled rice. Latin American countries typically import southern long grain rice while Turkey prefers California medium grain. World Trade Remains High Since 1995, world rice trade has remained substantially higher than in any previous period, accounting for over 5 percent of total use, well above the previous average of less than 4 percent. Total world rice trade was a record 21 million tons (milled basis) in 1995, up 27 percent from the prior record in 1994 and almost 70 percent higher than the previous 13-year average of 12.3 million tons. Trade in 1996 was 19.5 million tons, the second highest on record and trade for 1997 and 1998 is projected at 18.3 and 19.2 million tons. While weather-related production shortfalls in major consuming countries were responsible for some of the expanded trade, several recent changes in the world rice market are behind the sustained large trade levels. First, several countries in Latin America and Asia have been unable to produce enough rice to satisfy growing domestic demand and have become steady significant importers. Brazil, for example, was a minor player in the world market prior to the mid-1980s when it became a modest regular importer. But production peaked in 1987/88 and Brazil now imports over 1 million tons a year and is one of the world's largest rice importers. To a much smaller degree, several Central American countries have also been unable to expand production and have imported greater amounts of rice to meet growing demand. Outside of Latin America, Indonesia--nearly self-sufficient in rice in the mid-1980s--has been unable to increase production enough to satisfy growing demand. Like Brazil, Indonesia has become a regular importer, at times taking a million or more tons a year and ranking among the largest importers. To a slightly lesser degree the Philippines has moved toward becoming a regular major importer. While the United States typically exports little rice to Brazil and Indonesia, Central America and the Caribbean are growing U.S. markets, especially for rough rice. Second, the WTO requires both Japan and Korea to partially open their markets to imported rice. The level of mandated imports is required to increase during the life of the current WTO-GATT agreement as well. By 2000, the combined WTO-required imports for both Japan and South Korea will be over 800,000 tons (milled basis). Both countries had formerly barred imported rice. In 1995/96 and 1996/97, the first two years of required imports, the U.S. supplied over 45 percent of Japan's rice imports but none of South Korea's. Additionally, it is important to note that much of the expanded trade in milled rice has been for higher quality rice, i.e., low percent brokens. Latin America, the Middle East, and high income Asian countries account for much of the trade growth. For example, China imports mostly high-quality fragrant rice from Thailand and parboiled rice is popular in much of the Middle East. Vietnam--once strictly a low-quality exporter--has improved the quality of its rice in recent years to satisfy increased trade opportunities. The improvements in quality stemmed from technological advancements and improvements in the milling process, polishing, and varietal selection that more matched demands of buyers. Higher Quality Standards Domestic and international demand for the low quality portion of U.S. rice have declined since the 1980s. A large portion of lower quality U.S. milled rice--measured by grade and percent brokens (20 percent maximum for food aid)--was shipped as food aid and these shipments have declined in recent years. In fiscal 1985, the United States shipped over 500,000 tons of milled rice under the PL 480 program. But in 1996 it shipped less than 200,000 tons. Shipments in 1997 are estimated--based on allocations--at less than 120,000 tons. Reduced funding and higher prices account for the decline in food aid shipments. Both farmers and millers have had to adjust to the large down-scaling of this outlet for lower quality rice. In the domestic market, major brewers have significantly increased their quality specifications for rice since the early 1990s. Quality is measured by consistency, color, grade, age, appearance, and size. In fact, the largest U.S. brewer no longer uses brewers' rice (the smallest category of brokens) in producing beer. Instead, whole grain rice and second heads and screenings (larger classifications of broken rice) are used in beer manufacturing. The higher quality specifications have reduced domestic demand for low quality rice, while simultaneously increasing demand for higher quality supplies. Quality standards for many processed foods have also increased, with some uses very specific on grain type and in some cases variety. Specifications for pet food use are more flexible than for beer. Pet food has become the largest outlet for brewers' rice. Cereal is the largest processed food use of rice excluding beer. Major cereal manufacturers are specific in their demand for either California medium grain or certain southern medium grain varieties. Much Greater Planting Flexibility Since 1996, planting decisions have been solely in response to market forces, with target prices, deficiency payments, and other supply control measures eliminated in the 1996 farm act. This has created much greater planting flexibility for U.S. rice producers, making production more price response. It has also shifted some area to the more competitive regions and away from high-cost producers on the Texas Gulf Coast. Farmers are no longer locked into planting for base and can thus shift area in response to market signals. Rice Prices Remain Firm Since the fall of 1995, U.S. rough rice prices have risen to--and remained at--substantially higher levels than previously maintained for nearly 15 years. In fact, monthly prices have exceeded $9 a cwt since November 1995 and have averaged $10 since January 1997. The 1996/97 season-average price was the highest since 1980/81 and the 1997/98 price is projected to be the second highest. The higher prices in many ways result from several factors discussed above: a larger share of use going to the domestic market, smaller stocks, greater rough rice exports, a decline in domestic and export demand for lower quality rice, and stronger world trade--especially for higher quality rice. Substantially higher U.S. prices have caused the spread between domestic and international rice prices to widen substantially. U.S. rice was once thought to be competitive with a price premium of $40 to $60 over the Thai price for comparable quality milled rice. But U.S. rice is currently trading at over $150 a ton more than Thai prices for rice of similar percent brokens and grade. For 1996/97, the premium averaged $114 per ton. U.S. rice sells at a premium to even high grades of Thai rice due to high U.S. quality and sanitation standards and to strict grading procedures that reduce risks to buyers. In addition, greater rough rice exports and a shift in the market to the Western Hemisphere account for some of the larger volume of U.S. exports in the face of substantially lower Thai and Vietnamese prices. Thailand does not export rough rice and ships little milled rice to Latin America. Vietnam typically sells rice at $50 to $60 a ton below Thai prices for similar quality shipments, but rarely competes with the United States. Three Equations Project Price Statistical relationships between various measures of price and stocks-to-use ratios were examined in an effort to develop equations to forecast annual U.S. rough rice prices. Stocks- to-use ratios encompass the combined effects of many supply and demand factors on market prices. One objective of this analysis is to see how well this composite variable captures the effects of the market changes discussed above on the price determination process. Results indicate three such statistical relations have merit as forecasting tools, although none is necessarily superior to the others. Ordinary least squares (OLS) regression equations are specified and used to estimate rice price relationships over time. All models were estimated in logarithmic forms. All equations are annual models covering crop years 1986/87 to 1996/97 (11 observations), a more market-oriented period relative to earlier periods. The small number of post-1985/86 observations is a limit to this modeling effort. In addition, although there is substantial market segmentation between long grain and medium grain rice, a simplification in the price models presented here is that rice is treated as a homogeneous product. This allows forecasts of the all rice price to be made directly, a primary focus of USDA's forecasting activities and thus a major objective of this study. The first equation estimates the ratio of the U.S. rough rice price to the world price as a function of the stocks-to-use ratio. The world price used in this model is the season average rough rice equivalent of USDA's weekly announced world price, a composite of traded prices of principal rice exporters. Equation 1 is specified as: (1) ln(FPrice/WPrice) = 0.881 - 0.233 ln(S/U) - 0.144 (Dummy) (6.58) (5.10) (5.88) where: FPrice = Annual farm price of rough rice (all rice) WPrice = USDA announced annual world rice price S/U = Ending stocks-to-use ratio, expressed as a percent Dummy = Dummy variable (Dummy = 1 in 1988, 1994, and 1995; 0 other years) R-square = 0.844 Standard error of regression = 0.033 Durbin-Watson statistic = 1.34 Degrees of freedom = 8 Numbers in parenthesis below each estimated coefficient are t-statistics. All estimated coefficients are significant at the 1-percent level. The intercept was positive, as expected. As hypothesized, the coefficient of the stocks-to-use variable was negative. In crop years 1988, 1994, and 1995 the U.S. paddy price and world price were much closer than typical. In other words, the U.S. price premium was extremely small. In those years, the intercept was 0.737, indicating a lower U.S. rough rice price. In 1988/89 and 1994/95, the U.S. price was relatively low, a result of large U.S. crops. In 1995/96 the world price was very high. U.S. rice exports were strong in those years and relatively low price premiums facilitated those exports. The second equation estimates the ratio of the U.S. rough rice price to the milled Thai Grade B 100 percent (f.o.b. Bangkok) price as a function of the stocks-to-use ratio. Thai 100 percent Grade B is the closest competitor to U.S. No. 2 southern long grain, the primary type of U.S. rice exported. (2) ln(FPrice/ThaiPrice) = 0.640 - 0.415 ln(S/U) - 0.170(Dummy) (3.00) (5.75) (4.76) where: FPrice = Annual farm price of rough rice (all rice) ThaiPrice = f.o.b. milled price Thai Grade B 100 percent rice S/U = Ending stocks-to-use ratio, expressed as a percent Dummy = Dummy variable (Dummy = 1 in 1988, 1990, and 1994, 1995; 0 other years) R-square = 0.826 Standard error of regression = 0.050 Durbin-Watson statistic = 1.84 Degrees of freedom = 8 All estimated coefficients are significant at the 1-percent level. The intercept was positive and the coefficient of the stocks-to-use variable was negative, as expected. In crop years 1988, 1990, 1994, and 1995 the difference between the U.S. and Thai export prices was smaller than average during the sample period. In those years, the intercept was 0.47, indicating a lower U.S. rough rice price. Crop year 1990 is an unexplained outlier, but as indicated earlier, U.S. rice exports were strong in 1988, 1994, and 1995 with low price premiums to achieve those exports. The final equation estimates U.S. rough rice price directly as a function of the stocks-to-use ratio. (3) ln(FPrice) = 4.85 - 0.995 ln(S/U) - 0.201 (Dummy) (13.2) (7.90) (3.05) where: FPrice = Annual farm price of rough rice (all rice) S/U = Ending stocks-to-use ratio, expressed as a percent Dummy = Dummy variable (Dummy = 1 in 1988, 1990, and 1994; 0 other years) R-square = 0.887 Standard error of regression = 0.010 Durbin-Watson statistic = 2.19 Degrees of freedom = 8 All estimated coefficients are significant at the 1-percent level. The intercept was positive, as expected, and the coefficient of the stocks-to-use variable was negative. In crop years 1988 and 1994, the U.S. produced large crops, pushing U.S. prices down and exports up. Crop year 1990 is an unexplained outlier in this equation. In 1988, 1990, and 1994, the intercept was 4.65, indicating a lower U.S. rough rice price. Results Equations 1 through 3 must be transformed from the functional relationships used for statistical estimation in order to derive projections of U.S. rough rice prices. The following 3 equations show the needed transformations. Equation 1 becomes: Fprice = WPrice {EXP [0.881 - 0.233 ln(S/U) - 0.144(Dummy)]} Equation 2 becomes: Fprice = ThaiPrice {EXP [0.640 - 0.415 ln(S/U) - 0.170(Dummy)]} Equation 3 becomes: FPrice = EXP [4.85 - 0.995 ln(S/U) - 0.201 (Dummy)] Where: EXP is the exponential function. Estimates from each equation for 1996/97 indicate season-average projected farm prices of: $9.81 for equation 1, $9.43 for equation 2, and $8.56 for equation 3. These compare with an actual season-average farm price of $9.90. The consistently low price equation estimates for 1996/97 may in part reflect a major revision in 1996/97 ending stocks that occurred after the marketing year had ended. NASS reported ending stocks at 27.1 million cwt (rough basis), up from 23.9 million previously forecast. Throughout the 1996/97 marketing year, projected stocks were below the level reported by NASS on August 31. Thus, during most of 1996/97, rice may have been partly priced based on a smaller stocks-to-use ratio than actually occurred. For 1997/98, forecast prices based on the December 1997 stocks-to-use ratio projection of 13.7 percent indicate rough rice prices of $9.82 from equation 1 (with a $7.50 world price), $9.43 from equation 2 (with a Thai Grade B price of $325), and $9.41 from equation 3 (direct price forecast). These rough rice prices compare with a range $9.25 to $10.25 forecast in December 1997 by USDA. The season average world and Thai prices are not official USDA projections, but were chosen by the authors as reflective of annual 1997/98 global market conditions to illustrate the use of the models. For an alternative world price of $7.00 and a Thai price of $300, equation 1 implies a $9.17 price and equation 2 implies a $8.71 price. With market forces driving the U.S. rice market, projecting U.S. rough rice prices has become increasingly important to participants in the U.S. rice industry. The three equations presented above are simple tools to project U.S. rough prices based on historical relationships with the stocks-to-use ratio. The equations provide a framework for checking consistency between supply, demand, and price forecasts for rice. The relatively simple structure of the equations and the minimal data requirements make them easy to use in conjunction with market analysis of supply and demand conditions, such as USDA's short-term and long-term projections activities. This effort, as well as the accuracy of projected prices, would be enhanced by more observations. Further, segmenting the U.S. rough rice market into long grain and medium grain markets, although adding to the complexity as a forecasting tool, could also enhance model performance. References Hoffman, Linwood, Janet Livezey, and Paul Westcott. "Relationships Between Annual Farm Prices and Ending Stocks of Rough Rice," Rice Situation and Outlook. RS-60. April 1991, pp. 21-25. Lin, William, Andrew Novick, and Janet Livezey. "Projecting the Market Price for Rice in 1988/89: The Stocks-to-Price Relationship," Rice Situation and Outlook. RS-53, October 1988, pp. 8-11. Van Meir, Lawrence W. "Relationship Among Ending Stocks, Prices, and Loan Rates for Corn," Feed Outlook and Situation. FdS-290, August 1983, pp. 9-13. Westcott, Paul C., David B. Hull, and Robert C. Green. "Relationship Between Quarterly Corn Prices and Stocks," Agricultural Economics Research. Vol. 37, No. 1, Winter 1985, pp. 1-7. Westcott, Paul C., David B. Hull, and Robert C. Green. "Relationships Between Quarterly Wheat Prices and Stocks," Wheat Outlook and Situation. WS-268, June 1984, pp. 9-13. List of Appendix Tables 1. Estimated supply, disappearance, and price, by type of rice, U.S. (rough equivalent of rough and milled rice), 1991/92-1997/98 2. Rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1962/63-1997/98 3. Long grain rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1982/83-1997/98 4. Medium/short grain rough and milled rice (rough equivalent): Marketing year supply and disappearance, 1982/83-1997/98 5. Rough rice milled, total milled produced, and milling yields, United States, 1978/79-1996/97 6. Rice milling yields, 1974/75-1996/97 7. Rice stocks: Rough and milled, 1981-97 8. State and U.S. rice production by class, 1985-97 9. State and U.S. rice acreage, yield, and production, by class, 1994-96 10. State and U.S. rice area planted, by class, 1988-97 11. U.S. rice acreage, yield, and production, 1958-97 12. U.S. and State average rice yields per harvested acre, 1953-97 13. Proportional distribution of rice production, by grain type, United States, 1953-97 14. Use and ending stocks for rice, United States, 1953-97 15. Prices and ending stocks for rice, 1953-97 16. Farm program prices and payment rates, 1976/77-1996/97 17. Farm program base acres, program acres idled, and participation, 1982/83-1996/97 18. Class loan rates and differentials, 1985-97 19. World market rice prices, loan rate basis, 1986-97 20. Rough rice: Average price received by farmers by month and marketing year, 1982/83-1997/98 21. Milled rice: Average price, f.o.b. mills, at selected milling centers, 1976/77-1997/98 22. Rice byproducts: Monthly average price, Southwest Louisiana, 1975/76-1997/98 23. Brewers' prices: Monthly average price for Arkansas brewers' rice and New York brewers 'corn grits, 1974/75-1997/98 24. Thailand milled rice prices, f.o.b. Bangkok, 1981/82-1997/98 25. Milled rice: Average cost and freight ARAG quotations, 1983/84-1997/98 26. World rice supply and utilization, 1961/62-1997/98 27. World rice production and stocks: Selected countries or regions, 1986/87-1997/98 28. World rice trade (milled basis): Exports and imports of selected countries or regions, 1988-98 29. U.S. rice exports by type, 1976/77-1996/97 30. U.S. rice exports by program, 1975-97 31. Top 10 U.S. rice export markets, 1991/92-1996/97 END_OF_FILE