HardAssetsInvestor

Written by Brett Owens  |

January 24, 2011

Setting Up For A Rally In Rice?

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The fundamentals look strong for this often-overlooked grain. But how should investors play it?

Jim Rogers, a fervent agricultural bull since he launched the Rogers International Commodity Index in 1998, recently cited rice as his favorite grain. He told MoneyNews:

When Jim casually name-drops a commodity—especially a grain—it's usually advisable to take a closer look at it. So let's dig into the investment-worthiness of rice and see if we should order up a side dish for ourselves.

Lower Acreage, Lower Supply

A recent Wall Street Journal article reported farmers are reducing acreage for rice by as much as 30 percent in favor of higher-priced cotton and soybeans:

With corn, soybeans, cotton and rice often competing for the same land, the sharp speculator can often do quite well buying the laggard(s)—which, in this case, is rice.

Rough rice is still well off its 2008 highs—and with potential acreage reductions on tap, we could see a breakout soon. (Source: Barchart.com)

A price-lagging grain often rallies eventually because farmers usually neglect planting it; they instead plant the crops that have already rallied, thus creating a shortage in the laggard grain and inevitably higher prices.