Japonica rice supply outlook bleak as 2023 progresses

Extreme weather has played an increasingly prominent role in global Japonica rice output and it is likely to be the key determinant of supply in 2023 across various origins.

Looking at the benchmark Californian medium grain market, output was severely curbed in 2022 by one of the driest "wet" seasons on record, with dam levels in the state recording unusually low levels as a result. Approximately 250,000 acres (101,171 hectares) were planted when all was said and done, around half of normal.

Naturally, this has severely curbed exportable supplies, with mills concentrating on supplying the domestic market and core export markets -- namely Japan.

While the 2023 crop is not due to be harvested until September, there is cause for optimism. In contrast to last year's dry weather, the 2022-23 wet season has been true to its name. The state's rice bowl --- the Sacramento Valley -- saw unusually heavy rains in late December and throughout January, replenishing reservoirs and helping to build up the state's snowpack.

It is still early days yet as farmers are not due to plant until the spring, but sources are optimistically hoping for a return to a 400,000 acre (161,874 hectare) crop, which would free up supplies for sales to currently neglected export markets, such as Jordan.

The main country to benefit from the small 2022 Californian crop has undoubtedly been Australia. The country saw bumper output in 2022 thanks to the La Nina weather phenomenon, which brings heavy rainfall to rice-producing areas of Australia.

Australia's primary rice marketer -- SunRice -- has been successful in recent Japanese tenders and even sent Australian Japonica to California late last year amid the state's poor output performance.

However, the Australian 2023 crop is looking less rosy. While La Nina continues to bring rainfall, it brought too much of it during the New South Wales planting season in late 2022, severely disrupting farmers' operations.

The latest projection from the Australian Bureau of Agricultural and Resource Economics and Sciences is for the New South Wales paddy crop to shrink by 48% year on year to 334,000 mt. Meanwhile, the US Department of Agriculture's latest forecast is for total Australian paddy output in 2023 to drop by 42% to 400,000 mt.

For its part, SunRice has been reluctant to forecast 2023 output. "Despite the significant wet weather and flooding activity across the Riverina region, many growers have been able to sow rice and we are pleased with the development of the crops that have been sown," a SunRice spokesperson told S&P Global Commodity Insights Feb. 1.

If output is anything like the projections that are being made, though, it is clear Australia will need to partially retreat from the export market later in 2023.

Italian and wider European output in 2022 much more closely resembled California than Australia. The flow of the Po River -- which irrigates the Italian crop -- went down to a tenth of its normal level amid drought conditions throughout the continent. Many farmers abandoned their fields, while the field and milling yields for harvested paddy were generally reported as poor.

This was especially the case for risotto varieties, with some estimating that output of these varieties in 2022 dropped 50% year on year and prices spiked in recent months amid low stocks. More broadly, sources typically estimate the total drop in Italian output in 2022 at about 20%-30%.

For the 2023 Italian crop, uncertainties remain, with dry weather continuing to be reported. According to an initial survey by Ente Nazionale Risi, the crop's area is likely to drop by 3.5% year on year to 210,800 hectares. While risotto varieties are likely to see a big uptick, these will be more than offset by drops in round grain varieties. But with dry weather perpetuating, a repeat of 2022 is certainly possible.

More broadly in Europe, there is a similar situation, with dry weather having severely curbed output. According to the latest USDA data, total 2022 milled rice production dropped 21% year on year to 1.35 million mt. The drop in output primarily came on the back of Italian output, but the continent's second-largest producer -- Spain -- also suffered from dry weather, in addition to Portugal. In Greece, many farmers chose to plant other crops. It is yet to be seen what farmers will decide for the 2023 crop, with planting decisions currently being made.

In lesser Japonica rice origins, supply in 2023 is likely to be a mixed bag. In South America, the main producing country of Argentina faces a bleak 2023 crop -- also because of drought -- with some sources estimating that total output may drop by as much as 40% year on year. However, it is unclear how Japonica varieties will be reflected in the total output reduction.

In Vietnam, harvesting of the main season winter-spring crop is starting to peak following lengthy delays, with Japonica supplies currently extremely low. Planting data in the country is sparse, although historically high Vietnamese Japonica export prices in late 2022 when farmers were planting could lead to a sharp uptick in Japonica output in 2023 as more countries -- especially in Europe -- increasingly consider Vietnam as a viable Japonica origin.

For China, output curbs in late 2022 were primarily confined to Indica growing regions, with no major concerns reported in China's Japonica-producing northeast region. The USDA projected marketing year 2022-23 (July-June) milled rice output at 146 million mt, down 2% year on year, although primarily equated it to lower Indica output in 2022. Traders of Chinese old crop Japonica have voiced concerns that the government could limit exports further in 2023. One such trader reported not having a good idea of the 2023 export quota as of early February, hoping to gain clarity later in the month. However, Chinese Japonica continues to be awarded in recent Japanese tenders for delivery much later in 2023.

The supply situation in faux Japonica medium grain markets also remains mixed, with total Indian output curbed in 2022 and Bangladesh demanding high volumes of what medium grain is available in recent months. In Myanmar, main season output in late 2022 was also significantly limited by conflict and high input costs, with some sources stating that medium grain varieties were disproportionately affected. Elsewhere, the 2022 medium grain crop in the US South was similarly disappointing, with what surplus there is also plugging gaps in traditional Californian markets, especially domestically and in Jordan.

The bleak supply situation is reflected in pricing. Platts benchmark Calrose assessment -- US #1, 4% broken white rice -- has hit successive all-time highs in recent months. More broadly, the FAO's Japonica rice price index, which is partially derived from Platts assessments, has also reached successive highs, reflecting a firmly sellers' market.

It is inescapable that few Japonica origin markets will be swimming in rice in 2023. Weather extremes in recent months have curbed output across the world, but especially so in core premium Japonica markets, like California, Australia and Italy. With the northern hemisphere due to plant in the coming months, it is hoped that exportable supplies will improve towards the end of 2023. But if 2022 is anything to go by, the market should learn to expect the unexpected when it comes to weather conditions.