HardAssetsInvestor

Written by Lara Crigger  |

April 10, 2008

Dipping Into The Rice Bowl

Details

Boosted by weather concerns, oil costs and biofuel programs, the price of rice looks quite nice.

• Rice a daily staple for more than half the world population
• 7% of total production trades on the global market
• Stockpiles at lows not seen since 1976

 

For such a little grain, rice certainly makes a big impact. One out of every five calories consumed by humans comes from the grain, and it's the second-most consumed cereal on the planet.

Like most agricultural commodities, rice prices have soared to record highs lately. But rice doesn't get as much attention in the U.S. as wheat or corn (maybe because you can't make a pizza or fuel a car with it). Still, traders who stick to the grain like, well, white on rice, could stand to make substantial gains in their portfolios.

Rice 101

Humans began cultivating rice as far back as 8,000 years ago, and it's now a daily staple for over half the world's 6.6 billion people. The hardy grain can grow almost anywhere: on mountaintops, in swamps and in either temperate or tropical latitudes. But it's especially suited for regions like Southeast Asia and the Gulf of Mexico, because rice requires heavy levels of rainfall to grow and plenty of low-cost labor to harvest.

According to the USDA, last year, farmers worldwide produced more than 420 million metric tons of rice. Most of that crop stayed in its country of origin: China and India grow the most rice in the world, but their citizens also eat the most, too. That leaves about 7% or so of the total production to be traded in the international market.

Thailand and Vietnam are the world's two largest rice exporters (sharing 26% and 15% of the market, respectively.) The U.S. comes in third, with a rice crop worth an estimated $1.8 billion.

In fact, rice is a vital part of the Southeastern economy. Five of the country's six major rice-growing states are in the South: Arkansas, Texas, Louisiana, Mississippi and Missouri (California being the sixth). Together, these states produced 6.3 million tons of rice in the 2007/8 season. That's a measly amount compared with China or Thailand, but since Americans only eat about 30 lbs of rice a year - less than a Chinese citizen eats in one month - about half the American crop can be exported. So while the U.S. accounts for just 2% of the world's total rice production, it shares 12% of the global rice trade.

Despite the huge 2007/8 rice crop, global stockpiles of the grain have dwindled to their lowest point since 1976, as consumers continue to eat more rice than farmers can grow. World stores of rice have shrunk from 130 million tons eight years ago to today's stockpile of 72 million tons - only enough to meet 17% of annual global demand. That has put governments - especially in Southeast Asia - in a pickle, since supply shortages of their citizen's staple food could mean breakouts of civil unrest and violence.

Rice on the Market

Traders on the Chicago Board of Trade exchange futures contracts in "rough rice," or rice as it comes in from the field after harvest, where it has been separated into individual grains. Contracts run in September, November, January, March, May and July, at a standard size of 2,000 cwt.

Since 2002, prices for rough rice have skyrocketed, rising 75% alone in the last year. One year ago, rough rice traded at $10 on CBOT. As of April 2, however, prices for the May 2008 contracts had nearly doubled, closing at $19.79.

"I don't think we'll see [rice] prices fall precipitously any time soon," Ted James, the principal economist at the Asian Development Bank in Manila, told the IPS News Agency.

 

 

Monthly Price Chart for CBOT Rough Rice Futures, 2000-current

Source: http://www.futures.tradingcharts.com/