to lead next commodity bull move
Commodity markets are heading
into a reflationary period that should lead to
bull markets across the agricultural sector, but
no market is as poised for an upward breakout
as rough rice appears to be. The fundamentals
keep getting more bullish by the day. A money
flow buy signal remains in place suggesting an
imminent surge in speculative buying activity,
and the technical back drop for spot rice prices
are approaching a boiling point that should peak
does one have such clarity in markets like rice. The
speculative shorts have provided a rare opportunity
to buy rice at an incredible discount to fair value.
They know not what they do, and that is a blessing for
contrarian value commodity investors. The bullish case
for rice is made in detail in the charts below, and
the detailed comments at the end of this report should
bring the whole bullish outlook together.
U.S. exports continue at this torrid pace, which is
almost certain if current low prices prevail and rice
production remains depressed in South America, cumulative
exports would rise 25% to 30% above last year’s levels.
There is not enough rice available in the U.S. to satiate
this kind of demand. Given the U.S. rice supplies available,
an export growth target from last year can only achieve
about 5% to 8% growth, and even that would take U.S.
supplies to bare minimum pipeline levels. The only way
to slow down exports is to ration export demand with
substantially higher prices.
looking at South American rice production potential,
the news for the next crop cycle is not looking good.
Acreage losses to corn and soybeans have been greater
than originally anticipated and erratic weather and
lack of water in southern Brazil are likely to crimp
yield potential. The bottom line is that Brazil is likely
looking at rice production at or below this past year,
which already is insufficient to meet burgeoning demand.
is too late for South America and Brazil to avoid another
year of insufficient rice supplies. It is not too late
for the next rice crop cycle in the United States. The
only way the Western Hemisphere rice supply crisis can
avoid getting worse is to encourage a dramatic increase
in U.S. rice acres for the next crop cycle. In order
to do that, rice prices need to gain dramatically vs.
corn and soybeans prices between now and February 2013.
As illustrated in the charts above, that process already
has begun, but it has a long way to go to reach fruition.
problems surface in South America for corn and soybeans,
as they typically do during this timeframe, and the
prices for corn and soybeans rally from here, the job
of getting an increase in U.S. rice acres will be even
more difficult, if not impossible. This is a very explosive
Rice is in
a classical demand-driven bull market with insufficient
supplies. Such a combination leads to super price spikes
in short periods of time. As we already have seen with
the parabolic move in Brazilian rice prices earlier
in the year, U.S. rice futures have quite a price parabola
of their own waiting just ahead.
of all major U.S. futures rice price spikes have occurred
from the fall to the following spring. The seasonal
stage has been set for another bull move. Speculators
remaining near record shorts leading into this Western
Hemisphere rice supply crisis only add additional fuel
to the fire. Speculators thinking that apparently adequate
Asian rice supplies will save them may be in for a rude
and painful awakening.
have not done their homework on U.S. rice futures. If
they had done so, they would understand that outside
of the 2008 Asia export ban induced bull market in rice,
all other rice bull market price spikes have occurred
as a result of bullish Western Hemisphere fundamentals.
They have fleeced the rice market long enough and now
it is time for them to get fleeced.
A major money
flow buy signal was triggered in August 2012 and remains
in effect. The two technical price charts contained
earlier in this report illustrate the powerful upside
technical explosiveness of this market. Both the bullish
wedge formation and the bullish diamond formation complete
by the middle of December 2012. That is only a few weeks
away. Any breakout of these technical patterns will
send the funds into a buying frenzy and will cause complacent
end users to panic buy as they have played a game of
chicken with U.S. rice producers for too long.
relative to the other grain markets, bottomed on Sept.
1 and have been moving up ever since. Over the last
two weeks relative rice prices to other grains have
broken out and are now in a raging bull market. Rising
relative prices always lead a rise in nominal prices.
look at the relative U.S. futures prices to Brazilian
cash prices, you also can see that both the ratio chart
and the differential chart have broken out to the upside
after an extended period of basing. Increases in relative
U.S. rice futures prices to Brazilian cash prices always
precede a large move in nominal prices.
level of current U.S. rice exports has occurred without
any buying from China or Brazil. Should either or both
of these countries start to buy large quantities of
U.S. rice over the next six months, which is likely,
then Katie better forget about baring the door…it ain’t
gonna make any difference.
As for the
relentless drum beat of bearish news out of Asia, the
situation is anything but bearish. China is buying rice
like it has rarely done before. India over shipped its
high-quality rice supplies in 2012 and will now be in
lock down mode trying to figure out what to do next.
Clearly its blistering exports in 2012 will not be repeated
in 2013, and that is bullish, especially with its drought-impaired
smaller rice crop.
and the Philippines are seeing alarming drawdowns of
strategic rice supplies that will reach dangerously
low levels in 2013 without a massive increase in rice
imports. Expect both countries to start buying in a
major way over the next few months. With China already
the number one rice importer in the world, the apparent
large Thailand rice ending stocks will be claimed quickly.
Expect global trade in rice to hit a record in 2013.
Department of Agriculture is projecting a decline in
global rice trade in 2013. They are in La La Land in
my view. With China, Indonesia and the Philippines all
looking at meaningful increases in imports from 2012
levels, the record high global trade figure set in 2012
should be exceeded in 2013. It would not surprise me
to see the number be as high as 40 million metric tons.
All this is to say, things are hardly as bearish for
rice in the Asian trading block as many analysts would
have you believe.
end to the long-term bull market in commodities may
be on the horizon but being long commodities now should
prove to be very fruitful. Looking at the whole agricultural
commodity space, the rice market represents the number
one buying opportunity.
that already own rice, look to add to positions on any
technical breakout in the weeks ahead. If you have been
waiting to buy rice, look to buy aggressively on any
technical breakout. End users should buy as much of
their future needs as possible. Time is running out
to buy economical rice for your business. Our bull call
in rice may be early, following our historical pattern,
but with moves like these, it is better to be early
then to miss it entirely.