U.S. rice farmers bet on higher prices

SACRAMENTO, Calif. -- As flooded rice fields the length of the Sacramento Valley turn emerald, farmers who watched in disbelief this spring as prices broke record after record now face a stomach-churning decision:

Sell? Or hold?

"My gut feeling is that everything's going to keep going up," said Sutter County rice farmer Mike Chesini. For now, he has decided to wait.

Riding the coattails of the tight global commodity markets, the spot-market price of California rice -- the money farmers can get for their crop -- has doubled since June and sits at $24.75 for 100 pounds.

The volatile market has spawned an explosion of new marketing techniques that make it possible for state rice farmers to sell their crop long before harvest, betting on whether the market will fall in the future or continue to rise. For every dollar the price shifts, even relatively small farmers stand to gain or lose tens of thousands of dollars.

"It's just crazy what's happening," Chesini said.

There's more than enough California rice to meet domestic demand. Experts tie this year's price run-up mainly to weak harvests and trade bans in some rice-exporting nations that have squeezed supplies worldwide. In the global market, some benchmark varieties are up threefold since fall, though prices have slipped this month.

In March and April, the fast-rising cost of Thai jasmine rice, prized in Chinese and Southeast Asian cooking, drove shoppers in Sacramento and across the country to stockpile hundreds of pounds. Since mid-April, retail prices have plateaued and sales have slowed, according to managers of local Asian supermarkets.

As the price climbed, though, so did the cost of farming. According to the U.S. Department of Agriculture, farmers paid 43 percent more for diesel in the first four months of 2008 than in the same period last year. Fertilizer costs jumped 65 percent, and herbicide prices are heading up as well. Rice is a heavy user of all three.

After adjusting the wooden water gate that divides one flooded rice field from another near the Montna Farms office south of Yuba City, farm manager Bill Warnock ticked off what it takes to grow Sacramento Valley's standard medium-grain rice:

-- 150 pounds of nitrogen fertilizer per acre and two herbicide treatments.

-- Enough irrigation to submerge each acre beneath several feet of water.

-- Tractor fuel to turn the heavy soil and till the rice straw into the ground after harvest.

-- Airplane rentals to spread seed and spray chemicals.

Still, even with all those costs rising, at today's prices most farmers could sell their 2008 crop in advance and be assured of a solid profit.

Besides managing 3,000 acres for Montna, Warnock farms some rice of his own, a specialty Japanese variety he sells under contract. In previous years, that arrangement has worked out well, but this year it means he won't get to cash in on the price spike.

"This year, I'd probably be better off" in the open market, he said.

Virtually all of California's rice is grown in the Sacramento Valley, where it has been the most widely planted crop since the 1940s. This year, about 550,000 acres will be harvested.

After several boom years in the 1970s and early 1980s, rice prices were low for nearly two decades. The last two years have been relatively prosperous, but they were nothing compared with the promise of 2008.

If anything, that sense of emerging from a dismal stretch adds to Chesini's anxiety. He doesn't know how long these high prices will last and doesn't want to blow a rare shot at big returns.

The math is simple. From the 800 acres Chesini farms with his brother and parents, he expects to have about 6 million pounds of rice to market this year. For each dollar increase in the sale price of a 100-pound sack of rice, he stands to earn an additional $60,000 on the full crop. Since March, the price per sack has increased $10.

But someday, he knows, the price will drop. The volatility of the rice markets this year is unprecedented, said Tim Johnson, president of the California Rice Commission, and prices could fall as quickly as they've risen.

What's more, if rice prices fall but diesel and chemical costs stay high, the industry could quickly be back in the red.

E-mail Jim Downing at jdowning(at)sacbee.com

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)