08-05-2017: September Rough Rice: Optimism on China's Import Demand

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

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Introduction

Economic powerhouse China pretty much controls the price of rice according to its import needs. Lately, it has broken its mold by considering importing rice even from the U.S. in spite of impending possible trade wars. The world situation with rice seems to rely upon increasing population against a backdrop of fairly constant supply with bad weather in some rice producing countries and bumper crops in others.


Intermarket Analysis

We fed rough rice, soybeans, and wheat into a neural network to get the following result:




Parabolic Chart

September Rough Rice:

Parabolic Chart


Nirvana Chart

September Rough Rice:

Initial Chart


News Analysis

Rice markets have moved higher helped by increased demand from the Muslim holiday Ramadan. A smaller U.S. crop means lower forecast global 2017-18 production worldwide, while global consumption continues to edge up, despite a shift away from rice in some countries. Asian rice markets have mostly firmed. There has been a smaller-than-anticipated off season crop from places like Thailand and Pakistan. Offers for rice from India have increased while quotations on Vietnamese rice have eased on seasonal harvest pressure and thin buying interest.

Export prices tended to strengthen in most Asian origins with Near Eastern buyers preparing for Ramadan. Vietnam has been the big exception.

In the Americas, steep cuts to 2017 plantings combined with lower-than-expected inventory levels, underpinned Indica variety prices in the U.S., although gains were capped by disappointment over lack of U.S. awards in a recent Iraqi tender.

There were some losses in rice quotations in Brazil and Argentina, but prices gained ground in Uruguay. The most significant decline in world rice production is in the U.S. Egaypt and Sri Lanka production of rice has been curtailed by lack of water. Food use is growing with the largest increase in India due to a growing population there. Feed and industrial use of rice is expected to increase in China.

Economic giant China for the first time ever is attempting to work out a trade deal with the U.S. to import rice from the U.S. But trade talks between the two nations have broken down recently over problems contrtolling North Korea. China's rice market was technically opened since it joined the World Trade Organziation in 2001. But the U.S. and China have spent a decade working on standards for rice producers and facilities interested in exporting the grain. That effectively shut the U.S. out of China, which imported 5 million tons of rice last year.

A continued point of contention has been the U.S. accusation of China dumping steel around the world. That pushes down prices and hurts U.S. steel producers. U.S. - China relations has along seen trade, investment, and commercial relationship between the two nations as the major "ballast."

India is a significant player in the global good grain trade. It is the second largest importer of rice. Government policies there have encouraged production of these two staple grains which are forecast at record levels. Despite bumper crops, the country's food grain trade is moviong in oopposite directions, with diminishing wheat stocks and record rice crops. Rice stocks will remain ample and still well above the desired buffer level, aiding Indian competitiveness. Second-largest exporter Thailand has held numerous auctions to reduce government-held stocks, but recently pressuring their prices higher. The majority of rice stocks continue to be held in China. Chinese rice exports have been meager for the past few years. Primary customers were South Korea and Japan. Prices from more affordable Southeast Asia compare to higher minimum support prices in China.

The two main facets of rice news appear to India and China, which formerly were anticipated to be major rice importers. Later, it turned out that India became a major rice exporter, somewhat counterbalancing encouraging news from China regarding rice prices.

Despite a bumper rice crop in Vietnam, China and Africa have been scrambling to buy supplies. In April, China imported 288,000 tons of rice from Vietnam compared to a monthly average of 176,000 tons in the first quarter. Chinese imports of Vietnamese rice are up 16% on a year to year basis.

A key element in forecasting rice prices is the USDA's "World Agricultural Supply and Demand Estimates" (WASDE) report. It recently showed all rice production in the U.S. will be 201.0 million cwt, down 23.1 million from the previoius year. Rice markets offer limited liquidity and are described as trading "by appointment, only". Still, rice prices are described as having "exploded" after teh most recent WASDE report.

World population growth is described as a major factor in increasing demand for rice.


Point & Figure Chart

150.0I                                                                  T  8/ 2
     I CBT - Sep-17 Rough Rice, 200,000 lbs., $/mw Cm.=0.01  Lim.= 1.0
     I
     I
     I
145.0I_________________________________________________________________________
     I       X
     I       XO
     I       XO
     I       XO
140.0I_______XOX_______________________________________________________________
     I       XOXOX
     I       XOXOXO
     I       XOXOXO
     I     X XOXOXO
135.0I___X_XOXOXOXO____________________________________________________________
     I   X XOXOXO O
     I   X XOXOX  O
     I   XO OXOX  O
     I   X  OXOX  O
130.0I___X__OXOX__O____________________________________________________________
     I   X  O O   O
     I   X        O
     I X X        O
     I XOX        OX X
125.0I_XOX________OXOXO________________________________________________________
     I XO         OXOXO                        X
     IOX          OXO O  X                     X
     IOX          OX  O  XO                    X
     IOX          OX  O  XOX                   X
120.0IOX__________O___O__XOXO________________X_X_______________________________
     IOX              O  XOXO                XOX
     IOX              O  XO O  X             XOX
     IOX              O  X  O  XO          X XOX
     IO               O  X  O  XO          XOXO
115.0I________________O__X__O__XO________X_XOX_________________________________
     I                O  X  O  XO        XOXO
     I                OX X  OX XO        XOX
     I                OXOX  OXOXO        XO
     I                OXOX  OXOXO        X
110.0I________________OXOX__OXO_O__X_____X_____________________________________
     I                O O   OX  OX XO    X
     I                      O   OXOXOX   X
     I                          OXOXOXOX X
     I                          OXO OXOXOX
105.0I__________________________OX__OXOXOX_____________________________________
     I                          O   OXOXOX
     I                              OXOXOX
     I                              O OXOX
     I                                O OX
100.0I__________________________________OX_____________________________________
     I                                  OX
     I                                  OX
     I                                  OX
     I                                  O
 95.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
                               111111
      344445555666677778888889900112211345666677
      301220002001101220111221202120102320112212
      018083990285675029157242234635557103452940
The above chart is giving a conventional buy signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical low and are in a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "%R." It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "%R" for Rough Rice (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system is working on a longer-term sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $200. Initial margin on a single contract is $1,485. Use of options is not advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

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-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours.):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that an uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Rough Rice November 14.6 Call @ 0.07 or less.


o 1 o 3 o 5


Calendar Spread

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 in the long run. The best time to enter or leave the above spread is when it is at -4.95 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at -6.80 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be at the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is up.
129.0|                                                                  T  8/ 2
 CBT - Sep-17 Rough Rice, 200,000 lbs., $/mw Cm.=0.01  Lim.= 1.0
     |
     |
     |
124.0|[________________________________________________________________________
     |AZZZ[[   <<<
     |AZZZZ[
     |ABBBZ
     |ABBBBYYYZZ
119.0|ABBBBBFXYYYYZZZ__________________________________________________________
     |AABBBEEFFFFXXYYYYYYZZZZ
     |ABBBEEEFFFFFFXXXYYYYYZ
     |ABBEEEEFFFFFWWXXXXYY
     |ABBEEEEEFFGGWWWWXXXXXY
114.0|ABBEEEEEEFFGGVVWWWWWWXXXXX_______________________________________________
     |AABBDEFFGGVVVVWWWWWXXX
     |AAAAABCDDDDDEEFFFGGVVVVVVVWW
     |AAAABBCCCDDDDDDDDDEEGGUUVVVVVVW
     |AAAABCCCCCDDDDDDDDEGGJJJUUVV
109.0|AAAABCCCCCCCCCDGGGGGGHHHJJJKKKUUUU_______________________________________
     |AAAAABCCCCCCCCGGGGGHHHHJJKKKMUUUUU
     |CCCGGGHHHHHHJJJJKKMMMMMNSSSSSSSUUUU
     |HHHHHHHJJJJJJKLMMMMMMNRRRSSSSSUUU
     |HHHHHJJKKKKLLMMMMMNNNRSSSSUU
104.0|HHHHKKKKLLLMMNNRRSU______________________________________________________
     |HHKLLLLLLLMMNNNQQQRRRRRRSU
     |LLLLLLNNNNOOOOOOQQQQQQQRRRTTTU
     |LLLNOOOOOOPPPPPPPQQQQTTTUUU
     |OOOPPPPPPQTTTUU
 99.0|TT_______________________________________________________________________
     |TTT
     |TTTTT
     |TTT
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 94.0|_________________________________________________________________________
     |
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 89.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.171
                 1 1 1 1 1 1                                          
       8 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8           8
       0 1 3 1 2 1 2 1 2 0 2 1 2 0 2 0 2 0 2 0 1 0 1 0 1 0           0
       4 7 1 5 9 3 7 0 5 9 3 0 5 8 3 9 3 6 1 5 9 5 9 3 8 1           2


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day ( 2/29 ).

Intraday Chart


                 Risk Versus Opportunity Report
                ________________________________

                 RRU7    September Rough Rice

                      High Price:  131.4
                   Current Price:  124.9
                       Low Price:  121.7

                            Risk:  0.051
                     Opportunity:  0.103

                    (O/R) Ratio =  2.031


Overall Recommendation

Decision Weighting Factors
FactorsWeighted 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 + 5
Place 10 September Rough Rice on a Buy Watch with stoploss @ -3.00 below the get-in point when recent price is represented as "124.90".
____________________________________________________________________________________________________________________________________________W.G.