Dossett On Rice: Bottom In Futures Ahead?

Rice harvest. ©Debra L Ferguson Stock Photography

Cash Market

  • India rice spot quote is very active. It is moving between R 3,000 per quintal and R 2,700.
  • There is strong export demand from many countries including Bangladesh and Sri Lanka. The big negative right now is that Nigeria has put an import stop on rice. India and Thailand are usually the biggest sources for Nigeria. So, right now the India exports to Bangladesh and Thailand exports to Sri Lanka are holding up the world rice prices even as Nigeria business has stopped.
  • Thai 5% broken rice is still steady at $403. They are reporting all time high exports of 11.25 MMT for 2017. The Ministry of Commerce is planning a 1 MMT contract with China. They will also seek to export to Indonesia and Philippines and continue sales to Sri Lanka.
  • Planting in Argentina and Brazil is down for the 2018 crop. Actual production is still a question. We should have a good number by March. Malaysia has had floods and Philippines experienced another typhoon last month, so weather continues to create export demand as it has in Bangladesh and Sri Lanka.
  • U.S. market is quiet as most rice is now in strong hands. We hear it takes $12.10-12.50 CWT to get farmers to sell good quality, but shippers and merchants are not that aggressive at this time.

Futures Market

  • There have been 1,268 contracts delivered on the January Futures out of the 1,782 total registered contracts. We had open interest of approximately 9,000. Rice is the only commodity that has a delivery percentage that high.
  • Most commodities have historically delivered around 3% of open contracts. Rice delivers about 25%. The bankers and the co-ops like to hold the spreads steady. That allows them to sell rice that they own in the front contract and then re-own it in the next contract month. They are able to collect the “carrying charge” spread and still own the rice. They can make up to 6% utilizing this strategy.
  • We have seen a further break in the March futures in the last week. There is a distinct possibility that futures bottomed on Thursday, January 4. We were down 10 cents in the morning and then closed up 6 cents. There is a further rally on Friday.
  • I am looking for a bottom soon because farmers have seen $13.00 rice and are likely to hold out for 12.50-13.00 before they sell any cash or futures. We get the final 2017 production report from USDA on Friday, January 12. Standby!

Markham B. Dossett was a Charter member of the New Orleans Commodity Exchange. He has traded rice since early 1981. He owns Talon Asset Management LLC where he hedges rice, soybeans, corn, wheat, cotton and cattle for producers in the South and Southwest. 

** Futures and options trading involve significant risk of loss and may not be suitable for everyone.

 


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