Saturday, July 16, 2011

Today's Major Market Move - Rough Rice Futures Up 21% in Past 30 Days

Most commodities have made nice gains over the last 30 days and rough rice futures have led the way posting a 21.7% gain. Of the 29 commodities we track on, 23 were up and only 6 were down. With QE2 having ended on June 30, I think this move in the commodities complex has taken many people by surprise. Here's a table of the top performing commodities:

There are several notable price points to mention from that table:
* Gold has passed its all time nominal high and is now approaching $1600/ounce
* Silver has rebounded nicely off of its recent low and is pushing towards $40/ounce
* Rough Rice has shot past the high of 2011 and is on the verge of passing $17/bushel
* WTI Crude is still hovering just under the psychologically important $100/barrel level
* Cotton is the primary contrarian, down 20% in the last 30 days and 35% for the year

This is the second time in the past month we've mention rice futures where previously we discussed how rice prices possibly factored into the Chinese central bank's decision to raise rates. If the recent parabolic move from rice continues, there may be a surprise rate hike coming from China's central bank.

The CBOT put out a small blurb indicating that reduced acreage and weather concerns are driving the recent move. They also made a passing reference to Thailand's "rice policies". In order to support farmers, Thailand has established a floor under rice prices that is 50% above the market level. From the Manila Bulletin:
She has promised rice farmers a minimum price of 15,000 baht per ton, much higher than the current market price of less than 10,000 baht.

"It will be the highest rice price in the world," said Korbsook Iamsuri, director of the Thai Rice Exporters Association.

"It will definitely affect our exports. With this price, we can sell our white rice only after Vietnam sells all its rice," she told AFP.
I wonder how rice consumers feel about the price intervention. It would also be a problem if there is rice that ends up not being sold at all because of insufficient external demand at the inflated price.

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