03-24-2012: May Rough Rice: Production Up as Countries Recover from Last Year's Weather Problems
After a disastrous year for rice farmers in Asia, Thailand and Pakistan flooding, the previous shortage appears to be clearing up with a highly-productive year for rice. Coming down off or historic highs, rice is gradually getting back to near normal, and abundant supplies, self-sufficiency on the part of nations that formerly imported rice, and considerations such as these lead us to conclude rice prices may be headed lower.
We fed rough rice, soybeans, and cotton into a neural network to get the following result:
May Rough Rice:
May Rough Rice:
Although rice from Pakistan is about the cheapest, Pakistanis raised their price between $5 to $10/ton recently. Indian and Vietnamese are the most expensive at $540/ton, followed by Uruguyan and Argentinian origins at $535/ton, U.S. at $505/ton, and Pakistan at $475/ton. Nigeria has been threatening to ban rice imports in order to develop its own internal capabilities. Rice producers in South America are in the middle of a harvest, but have thin sales and increased supplies. Pakistani rice quotes have been lifted recently by Chinese rice demand. Iran's grain demand may also be a cause. Iranian demand is mostly aimed at Indian sources. India is considering bartering a trade of crude oil for rice, which will allow Iran to import about one million tons of Indian rice. Vietnam is running at about a 260,000 ton per week pace. It would then ship about 11 million tons by year end. Vietnamese rice is considered lower quality and difficult to market. Vietnam's government is purchasing rice for storage to support Mekong River Delta farmers,a form of subsidy. USDA planting intentions reports suggest that U.S. farmers will switch to more profitable crops like soybeans, corn and cotton and away from rice. Some think the market has bottomed out for rice prices, but there is still some overhanging supply. Brazil is both an importer and exporter of rice. Most of the exports go to the USA. Very little is imported from the USA. Imports in Brazil are down 21% while exports are up 200%. In the U.S., Louisiana is having rice pest problems, while in Arkansas, rain is helping the rice crop there. Congress in the U.S. is trying to work on behalf of U.S. rice farmers in an effort to build up Iraqi purchases of U.S. rice. Iraqis want the rice pre-bagged, placing the U.S. at a disadvantage to other origins. Thailand, which suffered so much from flooding in the previous season, is now seeing shipments from that country dropping to 50% of what they were in the last season. Thailand is losing market share to Cambodia and Vietnam. Shipments to mainland China shrunk by 48% recently from previous years, and to Hong Kong by 27%. Bangladesh produced 3.16% more rice this year than last. Favorable weather and government suppport have led to a dramatic decline in import requirements. The government hopes to achieve 100% self-sufficiency by 2013. Imports have dropped to about 600,000 tons for the year versus a previous 2 million tons.
222.0I T 3/22
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The above point-and-figure chart is giving a conventional sell signal.
We are headed toward a cyclical low and a seasonal down period.
Our best-performing internal program is "Pattern." It is giving a buy signal.
Results of "Pattern" for Rough Rice (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $2,000. Initial margin on a single contract is $2,025. Use of options is advised.
Scale traders are not a factor in this price range.
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.
The average volatility shown below suggests that a major change in direction to up is imminent at a volatility low point.
Our option trade recommendation is to Sell the Rough Rice July 14.40 Call @ 0.63 or better.
What the May - Sep. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down. The best time to enter or leave the above spread is when it is at -0.20 or narrower buying the far as prices are falling and then selling the near, and exiting or entering when it is at -0.55 or wider sellling the far as prices are rising and then buying the near.
Here's an intraday chart for the previous day ( 3/22 ).
Risk Versus Opportunity Report
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RRK2 May Rough Rice
High Price: 15.01
Current Price: 14.4
Low Price: 13.15
Risk: -0.087
Opportunity: -0.178
(O/R) Ratio = 2.049
| Factors | Weighted Points |
|---|---|
| Inter-Market Analysis | - 1 |
| Parabolic Chart | + 1 |
| Nirvana Chart | - 1 |
| News | - 1 |
| Point & Figure | - 1 |
| Cyclicals | - 1 |
| Seasonals | - 1 |
| Internal System 1 | + 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Historic Range | 0 |
| Commitment of Traders | - 1 |
| Range/Volatility | + 1 |
| Level Table | + 1 |
| Other Factors | - 1 |
| Total | - 3 |
Place 7 May Rough Rice on a Sell Watch with stoploss @ +0.665 above the get-in point when approximate price is represented as "14.60."_____________________________________________________________________________________________________________________________W.G.
