RICE ECONOMICS Farm Program and Economic Outlook Valent Rice Seminar, Destin, FL March 3-6, 2003 Dr. Michael E. Salassi, Professor Department of Agricultural Economics & Agribusiness LSU Agricultural Center, Baton Rouge, LA

Discussion Topics 2002 Farm Program Provisions Current U.S. Rice Market Situation Future Domestic and International Outlook

2002 Farm Program Provisions

2002 Farm Program General Commodity Provisions Loan Rate Dir. Pmt Target Price (max CC pmt) 2002-03 2004-07 2002-07 Rice (cwt) Corn (bu) Sorghum (bu) Barley (bu) Oats (bu) Wheat (bu) Soybeans (bu) Cotton (lbs) $6.50 $1.98 $1.88 $1.35 $2.80 $5.00 $0.52 $1.95 $1.85 $1.33 $2.75 $2.35 $0.28 $0.35 $0.24 $0.024 $0.44 $0.0667 $10.50 $2.60 $2.54 $2.21 $1.40 $3.86 $5.80 $0.724 (1.65) (0.34) (0.21) (0.09) (0.03) (0.54) (0.36) (0.14) $2.63 $2.57 $2.24 $1.44 $3.92 (0.40) (0.27) (0.15) (0.65)

2002 Farm Program General Commodity Provisions Base Acres Allows producers to - retain current AMTA (contract) base acres and add oilseed acres, or - update base acres using the 1998-2001 acres planted and prevented planted to all covered commodities. Payment Yields Allows producers who update base acreage to the average of the 1998-2001 plantings to also elect to update program yields for counter-cyclical payments.

2002 Farm Program General Commodity Provisions Timing of Payments 50% of the direct (fixed) payment beginning December 1 of the year prior to the year the crop is harvested and the balance of the direct payments in October of the year the crop is harvested. For counter-cyclical payments, producers can received up to 35% of the projected payment in October of the year the crop is harvested, an additional 35% beginning in February of the following year, and the balance after the end of the 12-month marketing year for the specific crop. Marketing Assistance Loans and Loan Deficiency Payments Nonrecourse marketing assistance loans and loan deficiency payments will be made available to producers of covered commodities (wheat, corn, sorghum, barley, oats, cotton, rice and soybeans).

2002 Farm Program General Commodity Provisions Payment Limitations Per person limitations on program payments include: (1) $40,000 limitation on direct (fixed payments) (2) $65,000 limitation on counter-cyclical payments (3) $75,000 limitation on marketing loan gains and LDP payments Total dollar limitation per person equal $360,000 Other Provisions Bill retains current rules on spouses, 3-entities, and actively engaged requirement. Adopts a $2.5 million adjusted gross income cap on eligibility for participation in farm programs. Retains the use of generic certificates in the loan program.

2002 Farm Program Base Acreage and Program Yield Alternative Base Acreage Calculation Methods For the purpose of making direct and counter-cyclical payments, farm base acreage can be updated using specified methods. Two relevant to rice are: (1) The sum of the following: (a) current contract base acreage for covered commodities (b) 1998-2001 average of eligible oilseed (soybean) acreage on the farm (This option adds soybean base to current base acreage on the farm) (2) 1998-2001 average planted acreage of covered commodities on the farm. Includes prevented planted acreage. Acreage of all covered commodities on the farm must be updated. (This option updates base acreage for every crop on the farm)

2002 Farm Program Base Acreage and Program Yield Eligible Oilseed (Soybean) Acreage Eligible oilseed acreage may not exceed the difference between: (1) the total planted acreage for all covered commodities (2) the total contract (base) acreage existing on the farm. Calculation of 4-year average for years 1998-2001. Inclusion of All 4 Years In Average In determining a 4-year acreage average for a farm, no crop year in which a covered commodity was not planted may be excluded. Treatment of Multiple Planting or Prevented Planting If acreage that was planted or prevented from being planted was devoted to another covered commodity, the commodity to be used for that crop in determining the 4-year average may be selected.

2002 Farm Program Base Acreage and Program Yield Single One-Time Election Deadline for update election April 1, 2003. The election will apply to all covered commodities. Failure to make update election will be equivalent to not update (but adding soybean base) Payment Acres Payment acreage for covered commodities will be 85% of base acreage. Prevention of Excess Base Base acreage plus oilseed base cannot exceed total farm acreage.

2002 Farm Program Base Acreage and Program Yield Use of Farm Program Payment Yield Direct and counter cyclical payments will be based on existing payment yields established for the 1995 crop. Update of counter cyclical payment yields Farms updating base acreage may also update counter cyclical payment yields. One of two methods can be selected: (1) 70% of the increase above existing payment yields (2) 93.5% of 1998-2001 actual yields Payment Yield for Oilseeds Payment yields for oilseeds will be 1998-2001 average yields adjusted to 1981-85 levels (approximately 78% of 1998-2001 avg.).

2002 Farm Program Louisiana Rice Base Example Example for 100 Acres of Rice Base Rice Base Acreage on the Farm = 100 acres Payment Acres = 85% Rice Payment Yield = 40.8 cwt (state avg.) 1998-2001 Production History Planted Rice Acreage Yield per Acre (acres) (cwt./acre) 1998 82 45.3 1999 82 50.0 2000 64 50.8 2001 72 55.0 Average 75 50.3

2002 Farm Program Louisiana Rice Base Example Impact of Percent of Rice Base Planted on Total Program Payments Avg Percent of Rice Base Planted in 1998-2001 Total Payments 75% 85% 95% (1) No update $13,872 $13,872 $13,872 (2) Update base $10,412 $11,799 $13,187 (3) Update (70%) $11,117 $12,599 $14,080 (4) Update (93.5%) $11,065 $12,539 $14,013

2002 Farm Program Rice Base and Planted Acreage by State 1998-2001 Avg. Planted Rice Acreage Total Rice Base Acreage Percent of Rice Base Planted Arkansas California Louisiana Mississippi Missouri Texas U.S. avg. 1,545,250 498,250 569,500 267,500 178,000 244,250 3,302,750 1,664,642 590,054 760,000 375,976 142,102 592,907 4,150,342 92.8% 84.4% 74.9% 71.1% 125.3% 41.2% 79.6%

Current U.S. Rice Market Situation

2002/03 U.S. Rice Market Supply Side Factors The 2002/03 U.S. rice crop is estimated at 211 million cwt., 2 percent below a year earlier and the second largest production on record. U.S. rice imports are projected at 12.5 million cwt., second only to the 2001/02 record of 13.2 million. Beginning stocks are estimated at 39.0 million cwt., 37 percent higher than a year earlier. Total U.S. rice supplies for 2002/03 are projected at a record 262.4 million cwt., 2 percent higher than a year earlier.

2002/03 U.S. Rice Market Demand Side Factors Total domestic use is projected at a record 124.9 million cwt., slightly higher than last year. Food, industrial, and residual use projected at a record 121 million cwt. Exports projected at a record 105 million cwt., 12 percent higher than a year earlier. Rough rice accounts for most of the increase (37% of total U.S. rice exports). Total use for 2002/03 is projected at a record 229.9 million cwt., nearly 6 percent above last year’s level. Ending stocks are projected at 32.5 million cwt., 17 percent below the previous year.

2002/03 U.S. Rice Market U.S. Rice Supply and Use Rice Outlook, Feb. 12, 2003 2000/01 2001/02 2002/03 Million cwt. Beginning stocks Production Imports Total supply Domestic use Exports Total use Ending stocks Avg. farm price ($/cwt) 27.5 190.9 10.9 229.2 117.5 83.2 200.7 28.5 $5.61 215.3 13.2 256.9 123.9 94.1 218.0 39.0 $4.25 211.0 12.5 262.4 124.9 105.0 229.9 32.5 $3.85

2002/03 U.S. Rice Market U.S. Monthly Average Rough Rice Price $ per cwt. Month of marketing year

2002/03 U.S. Rice Market U.S. Rice Exports – Top 10 Export Markets Rice Yearbook, November, 2002 2001/02 2000/01 1999/00 Rank 1,000 metric tons, milled basis 1 2 3 4 5 6 7 8 9 10 Mexico Japan Haiti Canada Nicaragua Saudi Arabia Turkey Honduras El Salvador United Kingdom 465.6 359.2 258.1 171.4 129.3 144.5 112.7 111.9 108.0 94.3 Philippines Ghana 397.5 289.3 177.7 174.6 146.3 107.0 104.7 103.8 80.8 68.7 South Africa 368.3 280.5 210.2 200.9 175.3 154.3 125.6 81.3 75.0 72.2

2002/03 U.S. Rice Market U.S. Rice Export Market 2001/02 2000/01 1999/00 Total exports (1,000 metric tons) 1/ Top 10 markets 1/ Western Hemisphere 2/ Milled Rough 2,959.0 65.1% 59.2% 66.3% 33.7% 2,514.9 65.6% 49.2% 72.6% 27.4% 2,801.5 62.2% 46.3% 71.6% 28.4% 1/ Milled basis 2/ Product-weight basis

2002/03 U.S. Rice Market U.S. Rice Exports Through Jan. 2003 (1,000 metric tons, product-weight basis) 2002/03 (as of Jan. 03) 2001/02 (as of Jan. 02) European Union Turkey Japan Indonesia Brazil Canada Cuba Haiti Mexico Total 253.3 113.3 239.0 94.9 117.4 134.4 125.3 164.4 473.5 2,620.9 208.8 45.0 246.6 0.0 0.1 90.5 35.2 107.4 477.3 1,932.9

2002/03 U.S. Rice Market Rice Export Prices (dollars per metric ton) Marketing Year U.S. LG MG Thailand Grade B Vietnam 5% brk India Pakistan 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 415 369 284 272 213 194 396 470 454 313 265 302 231 184 192 196 269 257 202 165 185 183 286 276 268 171 179 255 - 209 198 186

and International Outlook Future Domestic and International Outlook

Future Outlook U.S. Rice Supply, Domestic Use, Exports Production will continue to vary from year to year as changes in market price influences planted acreage. Steady growth in domestic food use of rice is projected. The expansion in domestic food use of rice reflects a growing share of U.S. population of Asian and Latin American descent, a continuing emphasis on healthier life styles, and the greater use of rice for processed foods, including pet foods. Continued expansion in domestic use of rice eventually pushes U.S. prices higher relative to Asian competitors, a factor underlying weaker future projected exports. USDA 2003-2012 Agricultural Baseline Projections – Feb. 2003

Future Outlook U.S. Rice Domestic Use and Exports

Future Outlook International Rice Export Projections Rice Exporting Country 2002/03 2012/13 Thailand Vietnam India U.S. China Pakistan Other Total exports U.S. Share 7.5 4.0 3.9 3.1 2.3 1.0 4.5 26.3 11.9% 9.2 5.5 6.3 2.8 2.4 2.2 4.9 33.3 8.4% (million metric tons) World Ag. Outlook Board baseline