Dossett on Rice: Market Oversold, Cash Demand for Exports

©Debra L Ferguson Stock Photography

Cash Market

Rice prices in India and Thailand dropped a little this week. The big news is the USA has charged that India is breaking WTO rules by subsidizing their rice and wheat farmers at a level that is above the allowable rates. 

Thailand announced that they will auction, for the first time, 40,000 tons of rice from government warehouses for general consumption. Most of the rice in question is White 5%. They also announced they will export more rice due to higher demand and lower global supply. They raised estimates of total exports from 9.5 million tons to 10.

Iran, who probably will not be doing business in the USA any time soon, has tendered for 20,000 tons from Pakistan. There are 16 firms bidding on the 250,000 tons of Philippine business. Most are from Thailand and Vietnam. It is all for delivery from July 31 – August 31.

US Rice Markets have remained quiet and strong. The USDA released the WASDE on Thursday, 10 May. Their guess is that we will produce 203.2 million CWT, a 14% increase, primarily long-grain. Rice use will also increase 3%. Long-grain exports should increase 4% to 72 MCWT. It looks like a lot of the rice-acres in the USA that switched to soybeans last year are not coming back to rice!

World-ending stocks are projected to be 144.7 million tons. That is up marginally. China will hold 67% of world rice stocks.

Futures Market

Last week we mentioned that there was support around the $12.70 area in July futures. Now we have dropped below the 30-day, 50-day ad 150-day MA. This morning we are below the trend line from the Feb 20 low.

The stochastic indicator is over-sold. July futures are now 80-90 cents below the cash price in most states. Therefore, I believe it is wise to buy futures. 

Rice News on AgFax

As we see most years, we have a dedicated-technical-short-seller. We are trading very low volume most days. The more this market declines, the more receipts will depart registered warehouses in Arkansas.

Remember those 200 receipts that arrived during May deliveries? Well, they have already gone down the river. We now are under 1,000 receipts again.

The cash demand is out there for exports; so if the futures stay this low we will soon be under 800 receipts. How will the short exit his position? He cannot roll to September; it is at a 60 cent discount to July.

Planting is getting finished, but one bad run of abnormal weather and July futures will not be under $13.00 for long.

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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