For full disclosure I am currently long rice. This is not a solicitation to buy or sell any commodity rather just an explanation of my current thoughts about this particular market. I have been asked many times the past few weeks and wanted to update my perspective.
The purpose of this comparison is to point out how much things can change and this upcoming year is likely no exception.
It is amazing to me that on May 22 2019 November rice futures closed at $11.73 and on May 22 2020 November rice futures closed at $11.68. So with a 16.7 million less ending stocks and an average farm price $1.80 higher the future price was 5 cents cheaper
Recapping the 2019/20 market: We lost substantial acreage last spring due to wet conditions, setting the stage for the reality we are living today. The total export commitments ( shipments plus outstanding sales) is more than the USDA projection with pipeline ending stocks and with deliverable receipts down to 121, we are going to run out, it is just a question of how the 6,747 open interest in July futures gets resolved. Early this month, May futures made a high at $18.70. I believe July will test that level before expiration. Given the unprecedented inverse of $4.00 N/U, look for a rollercoaster event now through July expiration. For those who were in step this marketing year, many firsts were made and lessons learned. From a spec perspective if you haven’t been along for the ride, this is not the time to jump into the shrinking pool of liquidity, however, consider the following sneak peek into possible coming attractions:
Looking ahead to the 20/21 marketing year, consider the following: Prevent planting starts May 25th, some acres will still get planted, but yields will suffer and some will opt for prevent-plant.
Obviously not as bad as last year but not ideal/concerning. My gut feeling is we have seen the largest plantings number and will likely lose 75k total acres from the March estimate. We will address this in more detail when the next planting intentions comes out in late June where we will likely see an increase of intentions due to farmers fudging with numbers to maximize benefits, but acreage certification in late August will true-up those numbers and net/net my current dart at the dartboard suggests we lose 75k acres or 5.5mmhwt’s of production.
Taking a look at our competition in S. America for 20/21, current forecasts for exports suggests
- Argentina 330mt, down 58mt vs LY
- Brazil 500mt, down 454mt vs LY
- Paraguay 600mt, down 89mt vs LY
- Uruguay 800mt, down 9mt vs LY
- Lastly, Brazil is projected to import 850mt, up 159mt vs LY
Bottom-line, our main export competition in this hemisphere has a net shortfall of 769mt of milled rice which when converted back to a rough basis is 26 million hundredweights while our exports are projected at 72 million up 2 million.
Furthermore, Brazil’s interior rough price made a low of 49.29 reals per 50 kilo bag ($9.45) on March 18th but closed at 62.79 reals on May 21st ($11.27). The previous highest price ever in real terms was 51.12 a couple of years ago. Obviously their currency has gotten crushed but the point being the flat price has been on a steady rise at the tail end of their harvest, unprecedented. This will likely adversely impact their plantings in Sep/Oct as all inputs are priced in dollars, and the real/dollar is near an all-time high at 5.7-1, up 30% vs last Sep/Oct.
Over in Asia prices are substantially higher in Thailand and Vietnam. Thai 100%B was quoted $517 per ton on May 20th up from $395 a year ago and Viet 5% was $470 up from $370 a year ago. While Asian rice is not substitutable in the US, rising tides lift all boats.
Takeaway is much higher prices in Thailand and Vietnam, much smaller supplies in South America plus potentially less US acres than projected in March all occurring at the same time November futures price are lower than last year. Not a lot of risk premium. To the best of my knowledge, we have never had back to back crop problems in rice, but it is shaping up to be the case this year. I view November futures as having limited long term value with limited risk at these levels.
Regards,
Andy
THE RISK OF LOSS in TRADING COMMODITY FUTURES CONTRACTS CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.
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