Thai rice prices continue to climb, rising $3 this week.
The Bangkok Post reports that China controls as much as 120 MM tons of old rice. The Post article also predicted that China plans to export 3 million tons to Africa. Apparently many Africans are used to eating old rice and they can buy the China rice for $300 MT as opposed to Thai rice at $390 MT. This helps out China because they can sell the rice that do not want.
One of the reasons that I stay bullish on rice is that I firmly believe that China and India both have the same problem that Thailand had 2 years ago. That is that one third of the large stocks of rice they claim to hold are rotten, some may be animal food but much is ethanol-only quality. If the world ever believed this theory rice futures would rally above $12.00 cwt and stay there.
India prices also continue to firm due to a late and weak start to the monsoon.
On 20 June, South Korea announced they had bought 20,000 tons of non-glutinous brown rice from China at $759.68 MT. In addition, South Korea also announced they would provide 50,000 tons of homegrown rice to North Korea. Seoul approved a plan to donate $8mln to the World Food Program (WFP) for food to DPRK.
U.S. Weekly Rice Exports released on June 20 were 28,100 MT. We need to sell around 60,000 tons per week to keep on our export goals.
There might be someone still planting rice but I sure wouldn’t be hoping for decent yields at this point. On June 19 we got first notification of leaf blast in medium grain rice in Arkansas. Both the 1-5 and 6-10 day forecast is for more rains in Arkansas, Mississippi, and Missouri. We understand that some old crop business has been done at $11.40 cwt.
Again, you can set your watch by the selloff within 2 weeks of FND on Rice futures. After a high of $11.90 in July futures on May 29, we bounced off $11.05 on Thursday, June 20. September is now the lead month with 5,218 open interests versus 2,836 contracts in July.
We traded big volumes in the first hour on the June 20 so maybe this is the bottom for this cycle. Registered receipts are still 661. We probably see more contracts registered and delivered next Friday on FND. However I don’t believe many of the big merchants will give up control of quality rice with a lot of Prevent Plant and forecast for reduced yields on a lot of late planted rice.
We bounced off the 150 day MA and 50 day MA on the June 20 and the stochastic will be oversold by Monday. The spread between July and September Futures is 33 cents cwt. This will make it tough on longs that plan to roll to September contracts. Normally a long in the spot month can roll forward for 25-28 cents.
The big merchants and short sellers are having their fun this week but this should be expected. The bottom line is that I still think September rice trades above $12.00 cwt and therefore I will buy these dips.
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.