Pick your poison. You could find any number of reasons and excuses why ags were annihilated last week. Several traders mentioned China’s efforts to curb speculation in commodities.
Most importantly on that front, China announced plans to release some copper and other metals from its state reserve. That could be the news that killed the yearlong uptrend in copper. The same thing is happening in lumber. Its’ crashed exactly 50% since May 10.
As we all watched in horror, CBOT grains collapsed this week. As of Thursday’s close, November soybeans had dropped almost $2/bu. IN A WEEK. The US dollar has traded sharply higher this week following the Fed meetings. Since getting close to its two-year lows in mid-May, the Dollar has rallied about 200 basis points; 138 of that in the last two days. This is a major headwind for commodities.
Looking at the rice market, the chart below reveals the technical weakness in the September contract. Currently, prices are sitting on 62% retracement of the move from the late December lows to the May highs. The 62% retracement level is $12.585; where the market trades Friday morning.
As mentioned, outside factors are driving price direction to some extent. From a purely fundamental view, the rice market really needs a surprisingly low acreage number from the June Acreage report to help turn around and recover.
Another thing to point out on the technical side of the rice market is the increasing volume and open interest. As background, open interest in the July contract peaked around mid-May and started a slow decline.
Rice News on AgFax
About the second week of June, the open interest in the July contract start to drop fast as traders head for the exits. As the trading volume and open interest shifts to and builds in the September contract, this tends to accelerate price trends. This is especially true when trading starts to break through key support, like $13.40. From there, momentum picked up.
One other point to make about rice futures is the spec longs have been exiting their positions. The managed money (non-commercials) had held a net long futures and options position in rice for 78 straight weeks—from December 3, 2019 until May 25, 2021. Their position flipped to net short two weeks ago. A spec net long position has oftentimes been the key to higher prices.
Again, an important support level in the September contract right now is $12.585. If that support fails, the risk of returning to the December lows at $11.58 becomes real. The June 30 Acreage will be key in stabilizing the rice market.
However, a lot still depends on outside markets and how they behave over the coming weeks, particularly the US dollar. A continued runup in the dollar will make it difficult for commodities as a whole to regain their upward momentum.
The graph below provides at look at Gulf (NOLA) barge price trends over the past year. Prices are updated through June 11.
Gulf urea prices have been on 5-week run higher, trading back to 2014 levels. Spot prices stabilized this week on the sharp decline in corn futures. The more deferred month urea values declined some. In addition to metals, the Chinese government has also expressed concerns over rising fertilizer prices. There is some speculation that China could announce a urea export tax as soon as next week.