Tuesday

Investing in Rice | Agriculture

3 Comments January 19, 2010 – 10:38 am |   | Permalink |  Print This Post |

Rice is the primary food for half the world population. Rice cultivation started as early as 10,000 BC in Asia. Although grown in every continent (except Antarctica), Asia produces 90% of rice grown world wide. The growth cycle of rice plants is 3-6 months, depending on weather and conditions. Most countries are still harvesting rice by hand, with industrialised countries using combined methods.

Historical Price of Rice on CBOT 1914 - 2009

Rice Price Chart 1914-2008

Looking at the chart above, we see spikes in rice futures up to $14 (ie current price) way back to 1914 ! This is ridiculously cheap.

Supply

World rice production in 2008-2009 rose 1.8% to 655 million metric tons. The world’s largest rice producers were

China with 29% (of world production)

India with 22%

Indonesia 9%

Bangladesh 7%

Vietnam 5%

Thailand 4% (#1 exporter)

World Rice Producers and Exporters 2008-2009

Top Reasons Why You Should Invest in Rice

- Rice is The world’s most important food commodity : The average American consumes 20 lbs of rice per annum, compared to an Asian american who consumes 150 lbs of rice per annum (thats x7 more: to look at it another way, if the average American has rice one day a week, the average Asian will be having rice 7 days a week).

- Rice one of the most heavily subsidized and protected commodities in the U.S.: Because rice is such an important commodity, it is one of the most heavily subsidized commodity in the US (and probably the world). This distorts the market and leads to a more volatile rice market. Watch this video for Daniel Grisworld’s explanation (director of Cato’s Institute, centre for trade studies).

- “Rice prices are on the rise after a typhoon in the Philippines and speculation that India will be allowing major imports of rice for the first time in decades.” BNN spoke with Ali Bilgen, president, A&BB Rice, a company that provides Canada with 60% of its rice, to find out where prices are heading. For the first time in 60 years, India is reducing its import tariff on rice and will potentially be a net importer. Watch this video for the interview.

How to Invest in Rice

It is not easy to invest in rice directly. Here are some ways to invest in rice (research ongoing):

1. Rice Futures through CBOT.

2. Agriculture ETFs: You can invest in rice via ETFs like Rogers Commodity RJA ETN. However, rice only makes up for 1.4% of the fund.

3. Listed Rice Companies: We are unable to find any listed rice companies at the moment, and would appreciate your contribution on this. We will update this section in the future.

Our Trading Plan to Profit From Investing in Rice

We will be opening some long rice futures position. We are currently finding a broker that gives us access to CBOT rice futures. We prefer to invest in a rice ETF or listed companies so that we do not need to worry about rolling over our rice contracts.

Statistics for Rice

How to Invest in Rice?

1. Futures and Options Contracts

Open a brokerage account that will allow you to trade futures, options and stocks.

The ticker symbol for rice is ZR. Search for the product in your broker search function to bring up all rice related products. If the code does not work, try “Rice”.  You will require a margin of $2000 for a rice futures contract and $200-250 for options contract. Futures for rice contracts have an expiry and go in months. This is probably not an ideal way for long term retail investors with full time jobs since it does have an expiry, and subject to the volatile price moments. To invest long term with futures, one would need to continuously roll over the contracts, ie buying a new one once the previous contract is expiring. Another easier way is to invest in Rice Stocks and ETFs.

Stocks and ETFs

We are unable to find rice producers that are publicly traded. So, you cannot purchase their stock directly. You can, however, buy the stock of companies related to the production of rice, such as fertiliser, seed-related to rice, and pesticides.

Alternatively, you could invest in exchange traded fund (ETF). These are funds that invest in several different, but related companies for diversification. There are several agricultural ETFs that you can consider. These include the ELEMENTS Rogers International Commodity fund (NYSE: RJA), the iPath DJ AIG Agriculture Fund (NYSE: JJA) and the PowerShares DB Agriculture ETF (NYSE: DBA). They are not rice-specific ETFs but RJA gives you a proportionate weight exposure to rice.

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