Dossett on Rice: Feeling Bullish but Technical Indicators Say Futures Overbought

Close view rice at flood. ©Debra L Ferguson Stock Photography

Cash Market

  • Prices in India are rock solid since February 3rd. They are not at the highest price in the last few months, but they are high. Thailand has finally seen a major decline after a 5-week rally. Thai 5% Broken has dropped from $461 MT to $443 MT on February 7th. We are now close to the price of January 17th. However, prices for Thai fragrant rice, called HOM MALI, have surged to a five year high. It is selling for $1184 MT.
  • Export demand is strong world-wide. Ecuador sold 13,000 MT to Venezuela, a country that has been a big U.S. customer for years. U.S. rice weekly exports rebounded to 57,200 MT in this Thursday’s report. I would like to see that above 70,000 MT, but new sales were up 67% from the 4-week average, so we are moving in the right direction. Shipments were 33,100.

We got reports this week of the Producers Co-op meeting in Cleveland, Mississippi. Apparently, Keith Glover, President of Producers, is as bullish about world demand as we are.

  • During the past few years, Producers Co-op had a very cautious tone. This year it was very upbeat. One thing to remember: yes, we will see an increase in rice acres in most southern states, but that increase may just get us close to planted acres from 2-3 years ago. That is not really an increase. That is just returning to normal. Of course, that is planted, NOT harvested. As we saw last year, there can be a big difference between those two numbers.

Futures Market

  • Although we are bullish, the rice futures remain overbought on most technical indicators. The March Rice Contract is hovering between the 50 and 150-day moving average. If we break the 50-day average on the down side, we will be set up to fill the gap on the chart at $11.38. Not probable, but definitely possible.
  • One thing that keeps my attention is the removal of registered receipts from deliverable warehouses. Last week we saw another big drop. On Friday, February 9th, we have 1282 deliverable contracts. We have open interest in March futures at approximately 6000, so there is more than enough rice to deliver, but the drop in receipts indicates that sourcing rice via the futures may be the most inexpensive way to get cash rice.
  • Bottom line: I believe we will see a break into February 28th, which is first notice day (FND), for the March contract; but when you see that break buying May contracts might be very lucrative.

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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