Bloomberg News

Water-Starved Texas Rice Eroding U.S. Harvest as Prices Gain

October 13, 2011

(Updates with today’s closing prices in 15th paragraph.)

Oct. 13 (Bloomberg) -- Ronald Gertson’s family has grown rice for five generations in east Texas, where the Colorado River makes the soil ideal for the grain and little else. Now, the state’s worst drought ever may keep Gertson from planting next year, eroding U.S. output that is the lowest in 13 years.

Unusually hot weather from Texas to Arkansas led the U.S. Department of Agriculture to cut its crop forecast yesterday for the first time in three months to 18.7 billion pounds (8.48 million metric tons), down 23 percent from last year and the lowest since 1998. Rice futures rose to a two-week high in Chicago on concern supplies will shrink from the U.S., the world’s largest exporter last year after Thailand and Vietnam.

The Texas drought has caused $5.2 billion in agricultural losses, Texas A&M University estimated in August, and the state climatologist predicted the dry spell will last into 2012. The local agency that manages water supplies to the biggest rice- growing region in Texas, the fourth-largest U.S. producer, is seeking permission to stop the irrigation flow for growers including Gertson.

“Our farm’s been going on for a long time, and this is the first time we’ve had to deal with this water shortage,” said Gertson, who estimates 60 percent of his 3,000-acre (1,215- hectare) farm may go unplanted next year. “I’m not holding out a lot of hope for recovery at this point, although certainly I’m praying for it,” he said by telephone from Eagle Lake, Texas.

Planting Decline

Record-low water supplies in Texas, saltwater encroachment in Louisiana, and the promise of more profit from other crops including corn or cotton probably mean U.S. planting will remain low next year, said Dennis DeLaughter, the owner of Progressive Farm Marketing in Edna, Texas. This year, farmers sowed 2.69 million acres, the fewest since 1987, USDA data show.

Among the top six producing states, including Arkansas and Louisiana, only California will have a bigger crop this year, government data show. Texas will collect 1.26 billion pounds from the harvest that ends later this month, down 6.4 percent from a year earlier and below last month’s forecast of 1.35 billion, the USDA said yesterday. Arkansas, where floods hurt plantings in April and May and drought reduced crops in recent months, will see production plunge 32 percent to 7.85 billion pounds.

“We’ve got to get some more acres,” said DeLaughter, who correctly forecast the drop in production this year. “Long term, the weather forecasts really are not good. We haven’t gotten near enough rain.”

Little Rain

Texas, which is forecast to produce about 7 percent of the U.S. crop this year, had less than 12 inches (30 centimeters) of rain on average since the drought began last October, making it the driest 12-month period since records began in 1895, State Climatologist John Nielsen-Gammon said. Part of central Texas got 5 inches from storms in the past week, the biggest rains in months. That was “not enough to make a difference” for farmers, Gertson said.

Drought may persist in the southern Great Plains for at least another year, because of the strengthening La Nina weather pattern, a period of cooling equatorial water in the Pacific Ocean, Nielsen-Gammon said in an interview from College Station, Texas.

Lake Travis and Lake Buchanan, two reservoirs supplying water to east Texas farmers and 1.1 million people including the city of Austin, were at about 39 percent of capacity as of yesterday, according to the Lower Colorado River Authority. The agency is asking the state for permission to stop releasing water for downstream irrigation March 1 to conserve supply. The move would affect farms in Wharton, Colorado and Matagorda counties, the state’s biggest rice-growing region.

The Colorado River of Texas runs from state’s northern panhandle to the Gulf of Mexico, and is different from the river of the same name that cuts through Arizona’s Grand Canyon.

Floods, Typhoons

Adverse weather outside the U.S. also may limit supplies. Thailand said yesterday that flooding may destroy the equivalent of 5 million tons of milled rice. Floods also have inundated almost 27,800 hectares (68,800 acres) of rice in Vietnam, according to the National Steering Committee for Flood and Storm Prevention and Control.

Typhoons in the Philippines, the second-biggest importer, spurred the country to cut its production forecast yesterday.

While the USDA projects a 3.7 percent increase in global stockpiles by next year’s Northern Hemisphere harvest, the agency probably will need to cut that forecast in coming months, said Shawn Hackett, the president of Hackett Financial Advisors, who correctly predicted a rally in the grain this year. Stockpiles probably will drop to a four-year low of 90 million metric tons of milled rice, compared with the government’s forecast of 101.41 million tons, he said.

Prices Rally

Rice futures for November delivery climbed 2.3 percent yesterday to $16.355 per 100 pounds on the Chicago Board of Trade, after earlier jumping by the exchange’s 50-cent limit. Today, the contract advanced 0.3 percent to close at $16.405. The price has rallied 15 percent this year, compared with a 1.5 percent increase in corn, a 22 percent drop in wheat and a 30 percent plunge in cotton.

Reduced output in the U.S. and Asia may send rice prices to $19 by February, the highest since futures reached a record $25.07 in April 2008, Hackett said yesterday by telephone from Boynton Beach, Florida.

Flooding in Asia “has to be factored in, because it means less production and much lower quality for the global supply,” Hackett said. The USDA’s world supply estimates “have no bearing in reality,” he said. “They have to drop way, way down in the next report, so that will provide additional bullishness to come in on top of lower yields in the U.S.”

Record Production

The USDA estimates that global production of milled rice this year may reach 461.4 million tons, the most ever. The Los Banos, Philippines-based International Rice Research Institute yesterday projected a world crop of 455 million tons, 1.4 percent below the USDA’s forecast, while still a record.

Higher prices have driven global producers to boost output, which may undercut a gain in U.S. futures, said Bobby Coats, an agricultural economics professor at the University of Arkansas in Little Rock.

“There’s a lot of competition in the world,” Coats said. “The other thing to keep in mind is that it’s going to take a number of years to work through the global financial crisis,” which may limit demand, he said.

Rice acreage plunged this year because prices weren’t profitable in January and February, when many farmers were making decisions about what to plant starting in April, Hackett said. Wheat touched a two-year high in February and cotton surged to a record in March.

Rising Costs

High input costs may still keep some farmers from boosting acres this year, even after gains in rice outpaced other grains, said Johnny Saichuk, an extension rice specialist with Louisiana State University. Rice is a water-intensive crop that requires fields to be submerged in 2 to 3 inches of water for months at a time. Farmers using groundwater have to pay for fuel to pump it to the surface.

“In spite of recent increases in prices, rice is still not very profitable,” Saichuk said by telephone from Crowley, Louisiana. “This year, it was very hot and very dry, which meant farmers incurred a lot of costs in pumping irrigation water.”

--With assistance from Pratik Parija in New Delhi and Supunnabul Suwannakij in Bangkok. Editors: Steve Stroth, Patrick McKiernan

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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