Dossett on Rice: Big Bull Demand but All Pandemics Eventually End

Rice field. ©Debra L Ferguson Stock Photography

Cash Market

Bull Market in Rice. 

Thailand has been getting a little rain, but the emphasis is LITTLE.  Fears of a continued drought have kept prices elevated at $525 for White 5%.  India has plenty of rice as China has displaced Indian exports in East Africa.  However, India has a shortage of truck drivers as COVID-19 has resulted in many absent transportation workers.  Prices are $355 – $265 for Indian White 5%.  Vietnam is exporting again and is selling for $455-$465 per ton.

Prices in Thailand peaked around April 15th at $30 over current offerings.  There was a big drop this week.  Mexico has approved the import of Uruguay rice, which is a big change, as Uruguay rice was banned in September of 2019 after they found the Khopra beetle in a shipment. Uruguay has a 60% market share of Mexico milled rice imports.  Mexico in the largest customer for US rice.


In the USA, the COVID-19 pandemic has resulted in a big-bull demand market, unlike cattle and crude oil which crashed.  It seems that after the American housewife bought all the toilet paper available, and then filled her freezer with beef, she turned to buying staples like pasta, dry beans and rice.

Unlike meat, which needs to be frozen, rice can be stored in the garage, attic or spare guest room.  Many stores ran out of all but 25 & 50 pound bags of milled rice.  Now, the grocery stores we have surveyed have all size packages from 14 oz.  to 50 lb. bags.  Therefore, we think the panic is over.  After 39 years in the commodity business, we fully understand that the only cure for low prices is lower prices and the only cure for high prices is higher prices.  But we are also aware of the elasticity of demand and all panics and pandemics eventually end.

Weekly exports on May 7 were 61,500 mt.  A big increase from last week, but about the same as two weeks ago. Planting has taken a quantum leap in Mississippi and Arkansas in the last week after another wet, cold spring that delayed planting just like last year.


Futures Market 

What started as a long-awaited bull market in rice futures has turned into a shameless and probably illegal short squeeze.

As many know, we have been very skeptical of USDA estimates of production and stock in not only rice, but also corn, soybeans, and wheat.  The USDA contacts we speak with will readily admit that they do a bad job of counting grain in transit, usually double counting.  However, we have been reassured that we will not run out of rice this year.  Therefore, the current short squeeze in May Rough Rice futures is starting to look like price gouging in the wholesale market.  Maybe Treasury Secretary Steve Mnuchin will have something to say about that because he has repeatedly warned against such actions.

Where is the CFTC? 

Well, that question can be asked repeatedly about the crude oil futures, the cattle futures, and rice. 

When I got into this business 39 years ago, the CFTC had close watch over the trading firms and over their customers.  No More.  About ten years ago, the exchanges quit monitoring their biggest customers, the algorithm hedge funds, as the exchange went public and became slaves to volume.

The explosion of new contracts and swaps for everything from weather to commodities delivered overseas has made the markets way too large to be properly monitored.  Hence, the large contracts like grains, cattle and energy have become a casino for the hedge funds.  In rice it is a little different.  Rice has never traded enough volume to move the needle for the hedge funds.  But we do have some large speculators involved and of course the large Co-Ops and International Shippers.

I guess the big longs that are trying to push this market up to $18 – $20 cwt believe we are going to run out of rice.  Well if that is true, then why is the July contract still at $14.94 cwt?  There will not be one grain of rice available in Arkansas in July that is not available now.  If the spread between May and July goes to 300-400 over again you will know this is just a short squeeze that should be stopped.  So the CFTC and Department of Treasury should take a look.

Arkansas – The Land of Single-State Delivery

I was on the floor on April 9, 1981 when the first rice contract in America was traded.  We originally had delivery points in multiple states.  That changed many years ago, so that now the only delivery points are in Arkansas.  That cuts out Texas and Louisiana farmers from being able to deliver on this contract and allows the Arkansas boys to control and squeeze this market.  There is no other agriculture futures market that has a single-state delivery.  I believe we need to petition for a delivery point in Texas and Louisiana.

After watching the debacle in crude oil which resulted in a $-40.32 price of WTI and watching the cattle market move limit down, limit up, and limit down in the same day, then more expanded limit down 3 days in a row, then expanded limit up 2 days in a row, I have to say that these markets are structurally broken.  They are no longer a valid means of price discovery and are very limited as a tool to hedge.  Some would say we should then use options.  Well, the volatility in the futures drives the options premiums to crazy levels, rendering them uneconomical.  I am waiting for the CFTC, the Exchanges, and the Commodity Firms to realize these markets need to return to serve the producers and end user.

Trade with great caution if you trade at all.  These markets are out of control.


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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