Quietly Rising
Fundamentals
With so much of the focus on the three major grains, Corn, Wheat and Soybeans, the Rough Rice market has slipped under the radar. The market has been in an upward channel since early July, boosted by crop losses in China and Pakistan. The El Nino weather pattern has also delayed plantings in the Philippines, another major exporter. The same weather pattern resulted in extremely dry weather in China's growing region. This has been followed by the La Nina weather pattern, which brings much wetter than normal conditions. While the increase in moisture has been welcome, it has also brought its own problems, including a sharp rise in pests that destroy crops. Also, consumers have been looking for alternatives to Wheat, because prices have surged due to extremely dry weather in Russia. US export demand could continue to rise due to the combination of normal and substitute demand. However, there is no guarantee that US demand will see the same surge that other countries have seen. Importers have favored shipments from Thailand and India to this point. Also, Pakistanis favor basmati rice from India over other varieties. Traders may wish to keep an eye on the severity of the La Nina rains and Wheat prices to gauge future price action.
Trading Ideas
The weather in the Northern Hemisphere has wreaked havoc on various crops this year, providing grain bulls with trading opportunities. The overall negative tone to the economy could offer resistance to upward price movement, but in theory, market fundamentals should prevail. The 12.00 level on the chart can be seen as potentially stout resistance, and a breakout above this level can be seen as fairly significant. For this reason, some traders may wish to enter into a long position on a significant close above the 12.00 level, with a stop at 11.25 and target of 13.15.
Technicals
Turning to the chart, we see the November Rice contract breaking the downward trendline in mid-August. Since then, prices have crossed through resistance at the 11.50 level and are testing additional resistance near the 12.00 mark. The combination of chart resistance and overbought readings on the RSI could cool buying pressure in the near-term. However, some traders could disregard the overbought conditions on a fresh breakout above the 12.00 level. If prices fall below 11.00, it would be seen as a setback for the market.
Rob Kurzatkowski. Trading Specialist
