Rice: Perfect Storm For
A Bull Market
a result of strong U.S. export demand last year due
global rice crops, rice supplies are currently at their
tightest levels since 1973. That, along with the continued
unfavorable U.S. planting/growing weather, could mean
drastically reduced numbers for the total planted acreage
for rice in future USDA reports, which means that yields
and total production numbers likely will be further
compromised. And in India, a very weak monsoon season
in the country’s main rice growing regions could drastically
affect their expected production potential, having a
profound impact on global rice supplies and on the value
of rice as a commodity. If this global production contraction
trend continues and new U.S. export demand emerges,
the steadily improving money flow measures, technicals
and very bullish fundamental trends of rice could become
realized and shoot rice prices through the roof.
despite the sure signs that next year’s U.S. rice supplies
will reach new record lows, many investors continue
to be wary of rice and are not as quick to jump on the
rice bandwagon. Generally, these investors balk at investing
in rice for a few reasons. First, information is harder
to come by, therefore making it harder to understand.
Also, trading volumes of rice are lower than more widely
followed commodities, like corn and soybeans. This creates
anxiety among investors over a lack of liquidity, a
fear if they want to sell in a hurry.
rice can prove to be a lucrative investment for the
prepared investor who is willing to do some homework.
By having a long-term view, these investors will find
themselves ahead of the pack and in a prime position
rice market has established a very impressive six month
wedge consolidation formation, with a dramatic uptick
in price since mid-March, additional evidence that a
major bull market is on its way. Typically, such patterns
break out to the upside in explosive fashion, so to
confirm a technical break out of this pattern, a close
above $13.25 per 100 lbs. would be required. As “Breaking
out,” shows, this has already occurred.
$13.25 overhead resistance area has withstood every
rally attempt over the last six months. A break out
would clearly signal that selling at this level has
been exhausted, and a new higher level of price will
need to be sought. After this happens, sellers will
emerge in greater quantities and set new price equilibrium.
These overhead resistance levels tend to lead to explosive
upsides as sellers vanish and buyers become more aggressive.
recent explosion in prices indicates that a runaway
advance is already underway. The likely projection of
such a move would be $15.25. That was the last major
support taken out in November 2008, before prices plunged
to new lows. What was once strong support will likely
become strong overhead resistance.
current crop ratings projected for the new crop 2010
rice are well below last year’s levels, with 55% of
the crop rated fair to very poor. In fact, the state
of Arkansas (a key rice producer) recently saw the good
to excellent ratings decline from 50% to 46%, a large
drop in ratings.
this unfavorable planting weather in the United States,
it’s very likely that total planted acreage for rice
will need be reduced even further in future USDA reports.
In June alone, planted acreage was reduced from 2.526
million acres to 2.256 million acres, or 11%. Should
the U.S. new crop remain this far behind in development,
prices could really take off.
the last few months, rice exports have seen a notable
surge as well. Recent exports were substantially higher
than the four-week average. Should such robust exports
continue, the current and future supplies of rice will
have to be diminished in future USDA reports.
take advantage of this bullish outlook, I would suggest
placing orders to buy September rice at $14 or better,
with the upside goal of $15.25 as a near-term target.
When filled, use a $.50 trailing sell stop order from
the executed price. The upside potential for this trade
would be around $2,500 per contract.
is the commodity to own at this point in time from an
overall risk-adjusted return perspective. The fundamentals,
technicals and money flow measures are all in synchronization,
portraying a bullish future price picture for rice.
Hackett, commodities broker and author of the Hackett
Money Flow report newsletter (www.hackettadvisors.com),
is a nationally recognized agricultural commodities
expert with more than 15 years of money management experience.