Monday Future Thoughts: A Primer On Rice Trading

Paying attention to world news can pay dividends in trading.

One of the advantages of trading futures is that there is always a strong trend to trade in one or many futures contracts.

Over the last several months, I have heard non stop banter from the financial and mass media about the run up in rice. There is so much attention being paid to rice that the government of India has actually banned future trading in the commodity in an almost guaranteed-to-fail attempt at price controls.

Why all the hype around rice, what's behind the massive run up, and how can you participate in this roaring bull market? This article will put you on the right track to trade this energetic and controversial member of the grain complex.

Rice is a main food staple for 3 billion people. It is grown on every continent except Antarctica and employs more farmers than any other commodity on earth. With this type of consumer demand and supplier popularity it's easy to see why governments would become involved in attempting to control price.

Most interesting is there is no decline in supply but prices have surged from around 12 in August 2007 to 23.20 today.

Vietnam and Thailand have had record rice crops in the last year, yet prices keep spiraling upward. This smells of government manipulation and fear NOT natural supply/demand issues. It appears that the primary rice exporting countries, although flush with rice, are being swept by fears of food inflation.

Therefore, heavy restrictions have been imposed on the export of rice, limiting supplies on the world market, driving price skyward. Vietnam and India have instituted severe controls on exports and fears exist of Thailand following suit.

Thailand is the world's largest exporter of rice. The May contract was up over 1.00 and July was up .245 just yesterday, Sunday.

Here is a chart showing the bull trend. As you can see, there was a pull back, now it appears the upward trajectory has continued.

Rice or Rough Rice (RR) as it is known on the CBOT is traded in both pit and electronic forms. I will focus on electronic rice for this article. The symbol for electronic July rice is ZR N8.

It is an extremely thin traded commodity, and is only suitable for longer term speculation in my opinion. In fact, it's so thinly traded, on the CBOT, veteran commodity traders have commented that they have never seen an actual market for rice until this year.

It is traded in 100 weights and is presently at 24.50/contract. A hundred weight is 112 pounds. Most commodity future brokers allow traders to access ZR N8 on their platform.

Due to the very low volume, getting in and out may prove difficult so be certain to leave yourself plenty of maneuvering room in both price and time should you decide to venture into this volatile market.

Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.