Those wondering what to do about their ag positions better take a look at the contract for rough rice, which has skyrocketed by 50% since July to $14.50 a pound. Rice is the primary food stuff for 3 billion of the world’s 7 billion population, but is predominantly traded and consumed in Asia. That means that it is not widely followed by analysts in the West, and the futures contract for rough rice has been relegated to a quiet, illiquid, backwater of the commodities markets in Chicago.
However, the price of rice may be a valuable leading indicator for the things we do trade in size, like corn (CORN), wheat, and soybeans. Many of the disaster scenarios for the global food supply revolve around Asia, like the melting of the Himalayan glaciers, rising sea levels drowning the Chinese coast, or draughts parching crops in India. Crisis shortages will hit the rice markets there first, then spill over to other foodstuffs here. If China’s rice harvest comes in anywhere less than perfect, then it could suddenly become a large net importer and send prices to the 2008 high of $28/pound.
If that happens, you can count on Vietnam and India immediately banning exports, as they did two years ago, sending prices soaring. That’s when people hit my local Costco branch, cleaning them out of supplies so they could FedEx 50 pound bags to hungry relatives in Asia. It is all just another facet of the great global bull market in food, which I believe started in June.
By. Mad Hedge Fund Trader