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SPECIAL RICE COMMENT - April 15th
The rice sales number today once
again showed no slow down in export sales. Our comments continue
to state the USDA is wrong on their numbers as we point out weekly on the
rice exports page; however, I want to
explain why it is hard to really go after the USDA on this issue.
We may be able to later and I hope we can since that will mean the
market is much higher than currently, but for now we need to
focus on the one thing that gives credence to their numbers.
What is the most expensive rice in the chain
of supply? Now I could make some funny comments on this (like
it's mine since I always sell the high) but I'll
keep it serious for now. I'm talking about the highest priced
CASH rice in general. The answer is the rice receipted on the Chicago Board of Trade.
The reason is the high load out charge. I think the number is
still 23 cents but I could be off a couple since I haven't taken
delivery in many years (I wonder why!!). So with that said, here
is the question, " if we are going to almost run out of rice,
what will be the first indication we are in trouble with the supply?"
The answer is "rice receipts on the Chicago Board of Trade will be cancelled
and the rice loaded out." Or in other words, the CBOT rice
will enter the supply chain.
The number of rice receipts currently on the
CBOT stands at 900. This number has risen from about 380
starting early in the crop year and has not dropped at any time during
the year. In fact, the last addition was in March while rice was in
its major bull move to higher price levels. Here is the question the USDA is
asking, " if we are in that tight of supply for rice, why is there not
some of the cash rice on the CBOT being shipped out?" Good
question!! I will not go into my concerns that the CBOT has
allowed rice delivery points to charge way too much for load out
keeping rice from flowing out of facilities. The CBOT will
just respond that they do not want the CBOT to be a major rice delivery
mechanism which I agree with by the way. In other words, they do
not want buyers to always be taking delivery. What they want is
for there to be an orderly flow in and out of futures without there
being large deliveries. For instance, if I am a buyer of cash
corn, I would buy futures and then instead of taking delivery I would
buy cash corn when I need the cash commodity and sell my futures.
End result, delivery would never happen. In the big markets,
that is how it works as less than 1% of corn is ever actually taken
from the CBOT. Rice has always had a higher percentage but
it is coming down with the new contract specs. The fact that the
last rice taken should be from the board is not a bad concept.
So what is my point?? My point is that is we need to be focused
in on the listed receipts.
Rice traders need to be watching the most
boring thing there is in the rice futures market, the
CBOT receipts listing (Click on
Deliverable Commodities under Registration. It is an
excel spreadsheet and rice is located at the bottom of the sheet.)
If we start to see cancellations, things are getting tight. Some
of the
current 1.8 million cwt listed on the CBOT may be taken in the May deliveries.
If it isn't, I expect the USDA will change the domestic
consumption downward believing that the supply of CBOT rice is still
in place so domestic consumption, which can certainly afford to pay
for CBOT rice, is not taking up carryover stocks, YET!!!.
If I am a buyer of rice, I would like not to dip into those receipts
until the July futures delivery. The problem is there are
position limits in the July futures. How all of this plays out
will be exactly what we need to be monitoring in the days ahead and the biggest word here may be YET!!!
If we do not see receipts cancelled in May
then the market may set at current levels within 30 cents either way.
I expect the market to give us some indication of what will happen in
the receipt market since most of the receipts are owned by large rice
traders who, when selling receipts, will turn and buy the market since
they will have the information first that receipts are starting to
move. It's that old theory of mine. If I know something
that will affect the movement of the futures, I will take my position
in the market first and then write it here on the web site. (No,
I won't call you first!!) Traders are all the same, first they
take a position and then they tell the world!! If the market
starts to move higher and locals and large traders are behind the
move, you can bet, something has changed.
Bottom-line: If you see receipts
being cancelled before July deliveries, things could get crazy.
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