The Economics of Rice Production

The Economics of Rice Production LATMC Meeting Marksville, LA Friday, February 19, 2016 Dr. Michael Deliberto Department of Agricultural Economics & Agribusiness Louisiana State University Agricultural Center Baton Rouge, LA

U.S. Rice Production National Yield estimated at 74.70cwt/ac Million cwt. Million acres 400 4.0 3.615 350 3.5 2.910 300 2.617 250 2.679 243.1 3.0 2.575 2.468 2.5 221.1 200 184.9 199.9 192.3 189.9 2.0 150 1.5 100 1.0 50 0.5 0 0.0 2010/11 2011/12 2012/13 Production Source: USDA NASS. 2013/14 Harvested Acres 2014/15 2015/16

Total Rice Supply and Use TOTAL RICE Area Planted Area Harvested Yield per Harvested Acre Beginning Stocks Production Imports Supply, Total Domestic & Residual Exports, Total Rough Milled (rough equiv.) Use, Total Ending Stocks Avg. Milling Yield (%) Avg. Farm Price ($/cwt) Source: USDA. WASDE Report. February 9, 2016. 2013/14 2014/15 Est. 2015/16 Proj. Feb. Million Acres 2.49 2.95 2.61 2.47 2.93 2.58 Pounds 7,694 7,576 7,470 Million Hundredweight 36.4 31.8 48.5 190.0 222.2 192.3 23.1 24.7 24.0 249.5 278.7 264.9 124.4 129.9 121.0 93.3 100.3 102.0 35 28 34 65.3 66.3 67.0 217.7 230.2 233.0 31.8 48.5 41.9 71.0 70.5 70.0 16.30 13.40 12.50-13.30

LG Rice Supply and Use TOTAL RICE Area Harvested Yield per Harvested Acre Beginning Stocks Production Supply, Total Domestic & Residual Exports, Total Use, Total Ending Stocks Avg. Farm Price ($/cwt) Source: USDA. WASDE Report. February 9, 2016. 2013/14 2014/15 Est. 2015/16 Proj. Feb. Million Acres 1.77 2.20 Pounds 7,464 7,407 Million Hundredweight 21.9 16.2 131.9 162.7 173.3 200.0 95.3 102.7 61.9 70.8 157.1 173.5 16.2 26.5 15.40 11.90 1.84 7,218 26.5 133.0 180.0 88.0 69.0 157.0 23.0 11.00-11.60

Dollars per hundredweight Rice Prices, by Class $16.50 $16.00 $15.50 $15.00 $14.50 $14.00 $13.50 $13.00 $12.50 $12.00 $11.50 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 $6.50 $15.70 $15.40 $14.40 $11.90 $12.00 $11.30 2009/10 Source: USDA NASS. 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 LG MG

Market Outlook Downward revisions to farm prices LG ($11.30) and MG ($17.10) Long grain production forecasted at 133.0 M cwt Supply forecasted to be 5% lower than a year earlier Exports are 2% larger than a year ago Source: USDA. ERS. Rice Outlook. January 14, 2016 and USDA February 9, 2016 WADSE.

Long Grain Gross Returns/ac $1,200.00 $1,100.00 Gross Returns ($ per acre) $1,000.00 $900.00 $800.00 $700.00 2015 Estimate 69.90*$11.30= $789 $600.00 $500.00 $400.00 $300.00 $200.00 $100.00 2007 2008 2009 2010 2011 2012 Source: USDA NASS. Long Grain Acreage, Yield, Production, and Price for Louisiana. 2013 2014 2015

Milling Characteristics Milling yield interpretation base price of $12.00/cwt and a 2015 state milling average of 56/69 whole and broken price determinations (WK 10.22 to BK 6.51) Conventional vs. Clearfield vs. Hybrid Variety Technology Milling Percent * Whole Price Broken Price Price Received Cocodrie 66-74 $12.32 $0.95 $13.27 CL 151 66-73 $12.32 $0.83 $13.15 CLXL 729 64-74 $11.94 $0.95 $12.89 CLXL 745 66-70 $12.32 $0.47 $12.79 *Source: LSU AgCenter Rice Research Station. Results of the 2014 Louisiana Rice Varity Trials. Rice Varieties and Management Tips 2015. pg. 7. Crowley, LA.

Budget Share of Expenses Dry 11% Represents a 10-year average share of total variable costs per acre. Custom Ops 9% Haul 3% Interest 2% Repair 4% Total variable costs ranged from $501.89 in 2007 to $724.52 in 2012. Fertilizer 19% Fungicides 4% Fuel 28% Herbicides Insecticides 6% 2% Labor 3% Seed 9% Custom Ops Fertilizer Fungicides Herbicides Insecticides Labor Seed Fuel Repair Interest Haul Dry CLEARFIELD variety, drill planted, southwestern Louisiana.

Retail Fertilizer Prices $600 $550 Dollars per ton $500 $450 Urea $400 DAP Potash $350 $300 $250 $200 11/7/14 12/27/14 2/15/15 4/6/15 5/26/15 7/15/15 9/3/15 10/23/1512/12/15 1/31/16 3/21/16 Source: AgFax. DTN Fertilizer. Fertilizer Trends. February 17, 2016. DTN collects roughly 1,700 retail fertilizer bids from 310 retailer location weekly.

Input Trends for Louisiana Diesel Price/gal Nitrogen Price/lb $3.75 $0.70 $3.50 $0.65 $3.25 $0.60 $3.00 $0.55 $2.75 $0.50 $2.50 $0.45 $2.25 $0.40 $2.00 $0.35 $1.75 $0.30 $1.50 $0.25 $1.25 $1.00 $0.20 $0.75 $0.15 $0.50 $0.10 $0.25 $0.05 2007 2008 2009 2010 2011 Diesel CLEARFIELD variety, drill planted, southwestern Louisiana. 2012 N Fert 2013 2014 2015 2016

Production Costs per acre $800.00 $725 $700.00 $703 Dry $692 Dry $586 $600.00 $500.00 $554 Haul Interest Repair Fuel Fuel Seed $400.00 Labor $300.00 Seed Insecticides Herbicides Fungicides $200.00 Fertilizer Fert. Custom $100.00 2012 2013 2014 CLEARFIELD variety, drill planted, southwestern Louisiana. 2015 2016

Gulf Coast Diesel Price (Retail) This information would translate into a farm diesel approximated price per gallon of $1.41. (The Louisiana $0.45 tax is applied to the Gulf Coast region weekly $1.858 per gallon price.) Source: EIA. Weekly Gasoline and Diesel Prices. February 15, 2016.

Fuel Markets and Resulting Price per Gallon Source: U.S. Energy Information Administration. Petroleum & Other Liquids. This Week in Petroleum. February 3, 2016.

The 2014 Farm Bill Irrevocable program selection ARC or PLC PLC farm program payments Reference price of $14.00 per cwt Considers farm s program yield and the national MYA price No county (parish) level data used Paid on 85% of the crop s base acres

National Program Election Source: Schnitkey, G., J. Coppess, N. Paulson, and C. Zulauf. "Perspectives on Commodity Program Choices under the 2014 Farm Bill." farmdoc daily (5):111, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, June 16, 2015.

Program Election by State Crop ARC-CO acres PLC acres ARC-IC acres Total Base Acres Percent of Total Arkansas Corn 197,808 32,070.3 -- 229,879 3.33% Rice (LG) 2,926 1,912,031 -- 1,914,958 27.75% Soybeans 2,221,025 108,281 111 2,329,418 33.76% Louisiana Corn 279,311 32,720 509 312,541 10.59% Rice (LG) 1,333 799,855 -- 801,189 27.14% Soybeans 461,415 43,231 464 505,111 17.11% Mississippi Corn 346,194 18,703 678 365,576 9.68% Rice (LG) 1,171 413,107 -- 414,279 10.97% Soybeans 935,830 11,183 1,742 948,756 25.12% Arkansas reported 1,148,575 generic acres (16.64%); Louisiana reported 995,813 (33.75%); and Mississippi reported 1,623,887 (43.00%) base acres. Source: USDA FSA. May 29, 2015. Almost all LG rice acres were enrolled in the PLC program.

Dollars per hundredweight Rice Prices, by Class $16.50 $16.00 $15.50 $15.00 $14.50 $14.00 $13.50 $13.00 $12.50 $12.00 $11.50 $11.00 $10.50 $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 $6.50 $15.70 $15.40 $14.40 $11.90 $12.00 LG MG $11.30 Reference Price Loan Rate 2009 Source: USDA NASS. 2010 2011 2012 2013 2014 2015F

PLC Payment Calculation (LG) Parameter Measure Reference Price $14.00 per cwt 2014 LG rice MYA price $11.90 per cwt PLC payment rate PLC payment yield of farm PLC payment to farm a/ ($14.00-$11.90) = $2.10 per cwt 57.00 cwt 0.85 * ($2.10*57.00) = $101.75 a/ does not assume 6.8% sequestration reduction. The 2014 MYA price information was obtained from USDA FSA. 2015F price forecast of would trigger a PLC payment for both LG and MG rice. The estimated PLC payment rate would be $2.70 for LG (a $11.30 est. MYA price) and $1.00 per cwt for MG (a $13.00 est. MYA price). Alternatively, this can be interpreted as $1.70 and $0.85 per rice base acre.

PLC Payment Example (Rice) PLC PAYMENT ($ PER BASE ACRE) $400.00 $366.12 $341.71 $317.30 $292.89 $268.49 $244.08 $219.67 $195.26 $170.85 $146.45 $122.04 $97.63 $73.22 $48.82 $24.41 $350.00 $300.00 $250.00 $200.00 $150.00 $100.00 $50.00 2014 MYA Price MARKET PRICE ($/CWT) PLC example illustrated for Acadia Parish, LA. The producer elects to update payment yield on rice base to 57.4 cwt.

Louisiana FSA Base Acres Other 13% Cotton 35% Soybeans 17% Cotton base now termed generic. Rice 26% Corn 9% Cotton Corn Rice Soybeans Other Planted : Base Acre Ratio in Louisiana Crop 2009 2010 2011 2012 2013 Cotton 0.211 0.237 0.278 0.222 0.124 Corn 2.259 1.820 2.114 1.988 2.484 Rice 0.554 0.689 0.536 0.521 0.551 Soybeans 1.904 1.977 1.920 2.223 2.225 Source: USDA FSA. DCP/ACRE Final Enrollment Report. 2009-2013 crop years.

Decision Tools Available Projected costs and returns 2016 enterprise budgets Breakeven analysis Rice farm cash flow model User-specified data compatible ARC/PLC decision tool Location, crop, and user-specific Whole farm

NRAVC Tenant Operator CL Drill Planted, 2016 Percent 95% 100% 105% Rice Market Price ($/cwt) 80% 85% 90% 110% 115% 120% Yield (cwt.) $9.60 $10.20 $10.80 $11.40 $12.00 $12.60 $13.20 $13.80 $14.40 80% 56.0-65 -44-24 -4 16 37 57 77 98 85% 59.5-41 -19 2 24 46 68 89 111 133 90% 63.0-18 5 29 52 75 99 122 145 168 95% 66.5 6 30 55 80 105 129 154 179 204 100% 70.0 29 55 82 108 134 160 186 213 239 105% 73.5 53 80 108 136 163 191 219 246 274 110% 77.0 76 105 135 164 193 222 251 280 309 115% 80.5 100 130 161 192 222 253 283 314 345 120% 84.0 123 155 188 220 252 284 316 348 380 Source: Projected Costs and Returns for Rice Produced in Louisiana, 2016.

Rice Cash Flow Model Parameters: Unit Ratoon Crop Yields Weight PLC Program Base Acres Land Rent Irrigation (LLD) Input Prices Prices Gross Income

Rice Cash Flow Model (cont.) Cost Parameters: Custom Operations Drying Fertilizer Material Fungicides Herbicides Insecticides Seed Application Costs Planting Costs Hauling Labor Fuel Costs Repair (Fixed Costs) Net Returns

2015 Farm Program Calculator

Generated Program Report Parameters: Rice Price $11.30 Soybean Price $8.80 Parish: FSA Farm #1234 St. Landry Parish Farm Name Crops: Rice (PLC) and Soybeans (ARC-CO) Proj. Payment: Rice PLC $129 Soybean ARC-CO $42

ARC/PLC Decision Tool Comparison of the ARC and PLC Soybean Support Programs in the 2014 Farm Bill for Avoyelles Parish, LA Louisiana State University Agricultural Center - Department of Agricultural Economics and Agribusiness Step 1. Enter historical produciton data for parish and individual farm. Farm Yield Parish Yield per planted per planted acre acre Year US MYA Price 2008 30.00 $9.97 30.00 2009 33.00 $9.59 33.00 2010 42.00 $11.30 32.00 2011 29.00 $12.50 35.00 2012 47.00 $14.40 35.00 2013 46.00 $13.00 39.00 Program Payment Comparison by Covered Commodity (Soybeans), 2014-2018. Step 3. Enter the covered commodity's base acres on farm. 100.00 Base Acres Step 4. Comparison of the ARC and PLC Programs per base acre. ARC Payment PLC Payment Year 2014 2015 2016 $47.82 2017 2018 Step 5. Whole farm evaluation of ARC and PLC Programs (by FSA Number). Total ARC PLC Base Payment to Acres on ARC ARC Base PLC Farm Farm Payment Acres on Farm Payment Year 2014 100.00 100.00 2015 100.00 100.00 2016 $47.82 100.00 $4,781.61 100.00 2017 100.00 100.00 2018 100.00 100.00 $50.00 $40.00 ARC Payment $30.00 PLC Payment $20.00 $10.00 2014 2015 2016 2017 2018 Whole Farm Program Payment by Covered Commodity (Soybeans), 2014-2018. $6,000.00 TOTAL PAYMENT BY PROGRAM CHOICE Step 2. Enter expected yield per planted acre and MYA price over the next five years. Parish Yield per planted PLC Payment Year acre US MYA Price Yield for Farm 2014 54.00 $10.10 29.70 2015 50.00 $9.50 29.70 2016 45.00 $9.56 29.70 2017 45.00 $9.93 29.70 2018 45.00 $10.30 29.70 PROGRAM PAYMENT PER BASE ACRE $60.00 *2009-13 are the final reported yield and MYA price values. $5,000.00 $4,000.00 ARC Payment $3,000.00 PLC Payment $2,000.00 $1,000.00 2014 Total PLC Payment to Farm 2015 2016 2017 2018 **2014 contains the actual reported yield and price values.

Contact Information Dr. Michael Deliberto Louisiana State University Agricultural Center Dept. of Agricultural Economics & Agribusiness 101 Martin D. Woodin Hall Office: (225) 578-7267 Email: mdeliberto@agcenter.lsu.edu

Louisiana Rice Production Yield estimated at 69.40 cwt/ac Million cwt. Thous. acres 600.0 50 45 535 35 500.0 460 40 418 32.6 30 397 30.1 26.4 25 420 413 32.6 25.5 400.0 28.8 300.0 20 200.0 15 10 100.0 5 0.0 0 2010 Source: USDA NASS. 2011 2012 Production 2013 2014 Harvested Acres 2015

Market Outlook Downward revisions to farm prices for LG ($11.30) and MG ($17.10) based on reported cash prices through November and expectations for prices the remainder of the year Slightly higher area and yield estimates for 2015/16 Long grain production forecasted at 133.0 M cwt, 18% smaller than a year ago Plantings are 15% lower due to low price expectations at plantings; unchanged medium grain production and plantings Plantings declined in all states; yields forecasted lower Supply forecasted to be 5% lower than a year earlier Large carry-in for both long and medium grain Exports are 2% larger than a year ago Record pace of shipments in the first 4 months of the market year; declining price difference over Asian competitors; and expectations regarding remaining shipments Long grain exports down; medium/short grain exports up Source: USDA. ERS. Rice Outlook. January 14, 2016 and USDA February 9, 2016 WADSE.

Regional Rice Yields Est. State Rice Yield in 2015: 6,940 lbs/ac 8,000 7,300 7,500 7,100 (down from 7,130) 7,000 6,320 6,500 6,060 6,000 5,820 6,060 5,920 6,260 6,320 5,590 5,500 Northeast 5,000 Southwest 4,500 4,000 3,500 3,000 2,500 2,000 2005 2006 2007 2008 2009 2010 2011 2012 Source: USDA NASS. Quick Stats. Acreage and Production. www.nass.usda.gov 2013 2014

Average Urea Price Source: DTN. Retail fertilizer price trends. January 29, 2016.

Rice Acres Planted 2011 2012 2013 2014 Source: USDA. ERS. Rice Yearbook. March 31, 2015. 189 182 135 145 150 L OU ISIAN A 253 143 180 159 216 C AL IFOR N IA 305 160 130 125 191 540 423 402 418 462 AR KAN SAS 434 558 585 562 567 1,196 1,291 1,076 1,486 1,791 2010 MISSISSIPP I MISSOU R I T EXAS

Production (cwt) by State Texas Missouri Mississipppi Louisiana California Arkansas 5,000 25,000 45,000 2010 2011 Source: USDA. ERS. Rice Outlook. January 14, 2016. 65,000 2012 85,000 2013 2014 105,000 125,000

Long Grain Medium Grain Nov-15 Aug-15 May-15 Feb-15 Nov-14 Aug-14 May-14 Feb-14 Nov-13 Aug-13 May-13 Feb-13 Nov-12 Aug-12 May-12 Feb-12 Nov-11 Aug-11 May-11 Feb-11 Nov-10 Aug-10 May-10 Feb-10 Nov-09 Aug-09 Monthly Farm Prices, by Class $17.00 $16.00 $15.00 $14.00 $13.00 $12.00 $11.00 $10.00 $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00

Average Anhydrous Price Source: DTN. Retail fertilizer price trends. February 9, 2016.

Input Expenditures ($/ac) $300.00 $250.00 $200.00 62% 61% $150.00 59% 58% 53% 54% 48% $100.00 $50.00 2010 2011 2012 Fertilizer CLEARFIELD variety, drill planted, southwestern Louisiana. 2013 Seed 2014 Fuel 2015 2016

NRAVC Tenant Operator CLXL Drill Planted, 2016 Percent 95% 100% 105% Rice Market Price ($/cwt) 80% 85% 90% 110% 115% 120% Yield (cwt.) $9.60 $10.20 $10.80 $11.40 $12.00 $12.60 $13.20 $13.80 $14.40 80% 64.0-60 -37-14 9 33 56 79 102 125 85% 68.0-33 -9 16 41 66 91 116 141 166 90% 72.0-7 20 47 73 100 126 153 180 206 95% 76.0 20 49 77 105 133 162 190 218 246 100% 80.0 47 77 107 137 167 197 227 257 287 105% 84.0 74 106 137 169 201 232 264 295 327 110% 88.0 101 134 168 201 234 267 301 334 367 115% 92.0 128 163 198 233 268 303 338 373 408 120% 96.0 155 191 228 265 301 338 375 411 448

Net Returns Tool (with PLC) Parameters: Farm Price Received Farm Yield MYA Price Rental Share (or cash eq.) Cost Shares (%) PLC Program Yield Base Acres NRAVC to the GRW