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The Rice Marketers: Endgame

2Critical Marketing Elements in 2019/20

Geo-political developments

International rice trade

developments

Western hemisphere rice complex

Market outlook

3

There are known knowns; there are things we know we know. We

also know there are known unknowns; that is to say we know there

are some things we do not know. But there are also unknown

unknowns—the ones we don't know we don't know.”

- Former U.S. defense secretary, Donald Rumsfeld

Geopolitical atmosphere

4

Trump vs Xi

Imports Comprise of 12% of U.S. GDP and 68%

of U.S. economy is driven by consumption,

which could potentially experience inflation

US

2018 China’s growth dropped to slowest

annual rate in almost 3 decades

China

China’s economy more vulnerable to increased

tariffs than US. However, because there are no

term limits in China, Xi Jinping, better positioned

to endure longer trade war

Economic vs Political Advantage

5China goes after US farmers

Agriculture, mainly bean and

hog farmers have been most

adversely affected by 10-month

long trade entanglements

Industry

2018 pledged up to $12 billion in aid

to farmers to help offset their crop

losses and has to date allocated a total

of around $9.4 billion, with $8.52

billion of that as support to farmers.

USDA

Prolonged economic pain across the

American farm belt could complicate

Trump’s re-election efforts. Farmers have

been key supporters of the president, even

as his actions on U.S. trade policy have sunk

key crop prices.

Re-election hindrances

6

WTO Dispute

• China breeched WTO terms

by providing excessive price

support subsidies

• China’s administration of the

tariff rate quotas (TRQs) as a

whole violated its obligation to

administer them on a

“transparent, predictable and

fair basis”.

7

China’s Balance Sheet

• China’s rice balance sheet

swells due to policy, but

may be in for some

changes

• 8-years since China

support and International

prices converged

Highest endings stocks

on record

Several grain exporting countries testified

against China at WTO proceedings. Perhaps

more policing ahead

8

Global Balance Sheet

• China imports down 2

MMT in since 2016/17

• World rice prices down

$50 per ton YOY

• Thailand, Vietnam,

Pakistan, China to

increase production in

2019/20

• World rice stocks poised

to break record levels @

172 MMT

9

% of Global Exports

• For more than a

decade, China

accounts for 1% of

global exports

• China matches US

exports

• Since 2011, India

largest exporter

Mercosur

5%

Cambodia

3%

China

7%

India

26%

Pakistan

8%

Thailand

21%

United States

7%

Vietnam

13%

Other

10%

% of Global Exports 2019/2020

10

Mercosur Prices soft and production down

• Brazil Real gains 5% on USD in 3 weeks

• Uruguayan producers already embracing for

smallest crop in years

• Brazil finding continued success in Nicaragua

& Venezuela

• Mercosur swoops on 25% of US market Share

in Mexico (with the help of Guyana)

United

States

76%

Guyana

9%

Uruguay

8%

Argentina

3%

Thaila… Paraguay

2%

Mexico Market Share

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CAFTA-DR

• Set to reach maturity in less

than 5-years

• Western Hem market share

threated by Vietnam and

other Asia origins

• Mercosur interest in CAFTA

grows

• Mercosur stocks sink to 3

year lows

12

2019/20 US Long Grain Area

• Early season

projections released

under different

circumstances

• Actual acres differ

by as much as 15%

nationally

•State level

plantings may vary

much more.

13

Projections vs. Reality

• Weather and pricing impacted plantings,

especially in AR and Upper Delta

•Mississippi River Flooding

•Prevented Planting option (Insurance)

•Alternative crop potential

•Tariff dispute(s)

• Total acres may be as low as 1.8 million acres!

• Projections do not reconcile with reality!!

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Production and Stocks

• Production will decline with

acreage shift

• Ending stocks expected to fall

in proportion to production

lost, ceteris paribus.

• What impacts will changing

export values have?

• How much impact will carry in

stocks contribute?

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Potential Implications

• Assuming beginning stocks, imports, and

exports remain unchanged

•A VERY strong assumption:

•Total Production ~ 136 Million cwt (6.2 MMT)

•Ending Stocks ~ 8.2 Million cwt (0.37MMT)

• Price - ????

• A 16% drop in production results in a 76%

reduction in stocks.

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Carryover Stocks – The Silent Menace

• Stocks at 103 Million cwt in

all positions as of 4/1

• Upper Delta region has

been flooding since that

time

• As much as 26 Million cwt

still unmoved

• New crop impacts??

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Pricing

• 2018/19 projection was WRONG! ($13.78/cwt projected - $12.00/cwt

realized)

•Tariffs, Global politics, crop size, Etc…

•2019…

•Will China be resolved and how?

•Will Mexico retaliate and how much?

•Actual crop size in US and global?

• $12.00/cwt - $14.50/cwt ($265/MT - $320/MT)

• “An economist is an expert who will know tomorrow why the things he

predicted yesterday didn’t happen today…” – Laurence J. Peter

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Weakness• Large carryover stocks

• Trade uncertainties

• Currency valuesS W

O T Threat• Drawn out negotiations

• Below average domestic crop quality

• Additional tariff duties on traditional

markets

• Traditional markets transition to new

suppliers

Strength• Lower Production & Exports

remain strong

• Firm pricing

• New export partners and

opportunities

• Declining inventories in

Mercosur

Opportunities• Strategic trades (i.e.Iraq)

• Favorable trade negotiation

resolution

• Competitive advantages in

production

S.W.O.T. AnalysisLong Grain Rice Market

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Weakness• US medium grain prices ration

demand

• More rice planted in 2019/20

• Larger carryout impact late

season sale prices

S W

O T Threat• Vietnam and China capturing

traditional California markets

Strength• Reduced planting due to

weather

• Turkey expected to

import

• Australia out as an

exoorter

• S. Korea trade deal in

worksOpportunities• Secure country specific

quota to S. Korea

• More stable market leads

to growth

• China trade to commence

S.W.O.T. AnalysisMedium Grain Rice Market

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“A part of the Journey is the End” - Ironman

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Questions