Rice extends losing streak on bearish fundamentals

Friday, 18 February 2011 04:18 -     - {{hitsCtrl.values.hits}}

  •  Rice losing streak at five days in trend reversal
  • Futures out of line with cash market
  • Export demand weak as US priced out of world market

CHICAGO (Reuters): Bleak prospects for US rice on the export market sent futures tumbling for the fifth straight day on Wednesday, leaving prices more than 10 per cent below a 28-month top hit last week.

Trading volume reached its highest in more than seven years after a wave of speculative buying had pushed futures above cash-market realities, traders and analysts said.

“The futures have been disconnected or decoupled from the cash market for quite some time,” said Michael Creed with Creed Rice, a brokerage and publisher of a weekly newsletter about the rice market.

An influx of fund money into the rice market sent prices higher over the past few months, along with gains in grains. But unlike corn and wheat, the rice spike was not supported by a tight world supply situation and the recent drop has left prices 41 per cent below their 2008 high.

Open interest in rice futures has risen 60 per cent in the past year, and prices had ridden the wave of new money seeking a piece of a red-hot commodities sector.

But the increases pushed US prices well above counterparts around the world, dampening enthusiasm for US supplies among foreign buyers. The most recent US Agriculture Department forecast put US exports for the 2010/11 crop at more than 10 per cent of the world total.

“Rice as a crop is bearish, has been bearish and is still very much fundamentally bearish,” said Neauman Coleman, a rice broker and analyst in Brinkley, Arkansas. “It is only when rice was considered as a future that it was considered to be bullish.”

Cash rice was trading close to $ 4 per hundredweight below CBOT futures in some areas, analysts said.    The USDA on Feb. 9 raised its forecast for 2010/11 ending stocks of US rice by one million cwt to 52.8 million cwt due to expectations that exports would rise less than earlier anticipated.

But the market shrugged off the bearish rice outlook on the day of the report, surging to $ 16.33-1/2 per cwt, its highest since Oct. 13, 2008, on the back of the government’s bullish view of corn, soybeans and wheat. CBOT rice prices peaked at $ 24.68-1/2 per cwt in April 2008.

The USDA’s baseline projection this week of an eight per cent fall in rice acreage this year, compared with the market’s view of a 20 per cent drop, added to the bearish tone on prices.

CBOT March rice fell 55-1/2 cents to close at $ 14.67-1/2 per cwt on Wednesday, after plunging to a low of $ 14.50 earlier in the day.

Volume was heavy, with more than 9,000 contracts changing hands for the first time since Oct. 31, 2003. Rice volume hit a record 12,326 contracts on that day.

The coming expiration of the front-month rice contract has prompted some traders to exit positions in the past week before their futures contract turns into a cash one, adding further pressure during the losing streak.

US farmers produce a small fraction of the world’s rice crop. The USDA forecast U.S. production at 6.4 million tonnes this year and set its world production estimate at 448.15 million tonnes.