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Understand why rice is in evidence ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀

Posted by Marina

Rice has made headlines in recent weeks, amid a sharp rise in prices along the chain, inevitably reaching the end consumer. The price paid to the producer has risen more than 50% since July, with the monthly average coming from R $ 64.50 / 50 kg bag that month to current R $ 103.50 / sc in the first half of September. There is not only one element or even a link responsible for the climb, but a combination of factors that will be discussed below.

It is known that rice culture in Brazil has been losing area for years to other crops due to the low profitability of the producer, who has been looking for alternatives in crops with a better financial perspective. The interesting prices of soy and even corn in recent years have fueled this dynamic of rice migration. In addition, national production was concentrated in Rio Grande do Sul, in crops irrigated with high technology. Despite the clear tendency to reduce the area, production has remained relatively stable, supported by productivity gains resulting from the intensification
technological development in areas remaining with culture.

Only in the last harvest year (2019/20) productivity increased 9% in the national average and 13% in RS. One of the factors that explained the insufficient prices and the consequent lower profitability of the crop in recent years was the trend of reduced consumption, which only increased again in the last two years of the harvest. The element of surprise this year, observed since March, was the increase in consumption associated with the pandemic, which redirected consumption away from home and into homes. This strengthened the demand and prices for several staple foods, not only in the rice sector. It is important to note that this demand shock has also occurred in other countries and, some of them have even restricted exports concerned with food security, which has generated a strong increase in international rice prices, although in the external sphere, prices have already returned to normal.

There was also crop frustration in Thailand, an important producing country, pressing the supply side on the global balance. According to Conab's figures, production for the 2019/20 crop year grew 6.7% to 11.183 million tons, while consumption increased 5.1%, reaching 10.8 million tons. Although the variation in consumption was smaller, it returned to the highest level in the last four years. In the previous two years, the equivalent of 1.7 million tons had fallen

In addition, the devaluation of the exchange has increased the competitiveness of exports, with greater product targeting for the foreign market, mainly to Venezuela. But the export of rice should end the crop year 2019/20 (until Feb / 21) with growth of only 139 thousand tons, in a total of 1.5 million tons. However, the country also imports the product, although the trade balance is in surplus. Import is estimated at 1.1 million bags, up 6%. On the inventory side, Conab estimates that it will arrive in February at 537 thousand tons, which is equivalent to 5% of national consumption. And despite the current high prices, the stock relative to consumption is no different from previous years.

So, if production has grown (almost double the consumption in absolute terms) and the final inventories are not lower than those of the previous year, why have prices escalated so much? It is estimated that little product is still in the hands of producers but there are those more capitalized who have chosen and could wait for the market to react to the bullish dynamics of food prices, which began to reverberate in rice prices as early as April. A similar situation occurred in the corn market, with the good harvest not preventing high prices from being sustained in the face of a moderate supply by more capitalized producers. The difference is that in the case of rice, this “greater profitability” only happened this year. And the majority, having already sold in advance, will not take advantage of today's very high margins.

In addition, another very important factor that strengthened the demand was the emergency aid from the government, which supported the most needy families, with broad targeting of the use of these resources for food and construction materials. It is feasible that the increased demand for basic foods is also a reflection of high unemployment, in addition to the radical change in the place of consumption of many people, something that still persists.

What lays ahead?

We are four months away from the beginning of the arrival of the new Brazilian harvest, a period in which the conjuncture of economic crisis and maintenance of financial aid (although less) should sustain demand. On the supply side, the government's exemption from the 10% tariff for paddy rice and 12% for the beneficiary, from outside Mercosur will be worth 400,000 t by the end of the year, which is equivalent to about 15 days of consumption. In addition, the devalued Real against the Dollar means that the product imported from Thailand is currently priced after Brazil at around R $ 85.00 / bag, which leaves no room for large falls. This means that the measure will help more in the sense of increasing liquidity and improving availability a little, but leaves little room for a more significant price correction.

Conab's first forecast for 2020/21 points to an increase of 12% in planted area, reflecting high prices, but with average productivity lower than this year's, which surprised. As a result, production is expected to grow 7.1% to 11.982 million tons, with the final stock ending the cycle (Feb / 22) at 817 milt, 52% higher than estimated for Feb / 21.

There are prospects for improved supply and lower prices for consumers, but this tends to occur only at the beginning of next year with the entry of the new harvest.

Source: Agrolink