Risk Warning: Your Capital is at Risk.
In this guide to trading rough rice, we’ll explain how and where you can trade this popular commodity with a list of regulated brokers that are available in your country. We also discuss why some traders choose to trade corn and what experts say about trading it.
In a hurry? If you want to get started trading rice, here are brokers available in to consider:
Disclaimer: Availability subject to regulations.
Between 74-89% of retail investor accounts lose money when trading CFDs.
Contents
How Can I Trade in Rough Rice?
Traders have several ways to trade in rough rice: futures, options, ETFs, shares, and CFDs.
Rough Rice Futures
Futures are a derivative instrument through which traders make leveraged bets on commodity prices. If prices decline, traders must deposit additional margin to maintain their positions. At expiration, the contracts are physically settled by delivery of rough rice.
The Chicago Mercantile Exchange (CME) offers a futures contract on rough rice that settles into 2,000 hundredweights, or about 91 metric tons of rough rice.
The contract trades globally on the CME Globex electronic trading platform and has expiration months of:
- January
- March
- May
- July
- September
- November
Trading in futures requires a high level of sophistication since factors such as storage costs and interest rates affect pricing.
Rough Rice Options on Futures
The CME offers an options contract on rough rice futures. Options are another derivative stock instrument that employ leverage to trade in commodities. As with futures, options have an expiration date.
However, options also have a strike price, which is the price above which the option finishes in the money.
Options buyers pay a price known as a premium to purchase contracts.
An options bet succeeds only if the price of rough rice futures rises above the strike price by an amount greater than the premium paid for the contract. Therefore, options traders must be right about the size and timing of the move in rough rice futures to profit from their trades.
Rough Rice ETFs
These financial instruments trade as shares on exchanges in the same way that stocks do. No ETF offers pure-play exposure to rough rice prices.
The ELEMENTS Rogers International Commodity Agricultural ETN (NYSEARCA:RJA) holds many agricultural commodities, including rice, in its portfolio.
| ELEMENTS Rogers International Commodity Agricultural ETN (NYSEARCA:RJA) |
ETFs such as PowerShares DB Agriculture Fund and UBS ETRACS CMCI Agriculture Total Return ETN invest generally in agricultural commodities, but do not necessarily hold rice in their portfolios.
| PowerShares DB Agriculture Fund |
Shares of Rough Rice Companies
No public companies offer pure-play exposure to rough rice prices. However, traders that want exposure may want to consider buying shares in large agribusinesses that provide seeds, fertilizers, and pesticides to farmers:
| Company | Current Price | Description | Exchange |
|---|---|---|---|
Monsanto | Global agricultural company that provides seeds, genomic and other products to farmers. | New York (NYSE) | |
The Mosaic Company | Global agricultural company that sells crop nutrients to farmers. | New York (NYSE) | |
Potash Corporation | Global agricultural company that sells fertilizer and feed products. | New York (NYSE) |
Rough Rice Contracts for Difference (CFDs)
One way to trade in rough rice is through the use of a contract for difference (CFD) derivative instrument. CFDs allow traders to speculate on the price of rough rice. The value of a CFD is the difference between the price of rough rice at the time of purchase and its current price.
Some regulated brokers worldwide offer CFDs on rough rice. Customers deposit funds with the broker, which serve as margin. The advantage of CFDs is that traders can have exposure to rough rice prices without having to own the underlying assets.
IMPORTANT: CFDs are not available in the USA due to local regulation, and regulated brokers do not accept US citizens or US residents as clients.
Where Can I Trade Rice?
Start your research with reviews of these regulated brokers available in .
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74%-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money.
What Do Experts Think About Rice?
One agricultural economist for the United States Department of Agriculture (USDA) believes that tightening world supplies could produce higher prices in the months and years ahead.
He believes that poor weather conditions combined with diminishing global stocks could end the price slide for the commodity:
You can see prices have been dropping, dropping for a while. But now we’re beginning to see tighter supplies in this country and in some other parts of the world.
Dr. Nathan Childs, USDA Economic Research Service
However, Dr. Childs is still cautious. He notes that the excessive inventory buildup will take time to work itself out. In the meantime, there is no shortage of rice:
I look at the all rice ending stocks, and, as I said earlier, we came off three years of abnormally high global ending stocks with high stocks-to-use ratios of 24 percent to 25 percent. That’s too high.
Reasons You Might Trade in Rough Rice
Traders purchase agricultural commodities such as rough rice for a variety of reasons, but the following are most common:
- Betting on global demand
- Climate change
- Inflation hedge
- Portfolio diversification.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Betting on Global Demand
Demographic trends across the globe bode well for rice consumption. Population growth in Europe and North America is stagnating, but in Africa, the Middle East, and Asia, population growth is on the rise.
These regions have traditionally consumed rice as a staple in their diet. As their populations increase, their demand for affordable food sources for their citizens will increase. Rice consumption should benefit from this trend.
Speculating on Climate Change
Rising global temperatures have the potential to wreak havoc on global crop outputs. As more regions experience drought conditions, the potential for food shortages increases. Rough rice prices should benefit.
How Does Rice Act as an Inflation Hedge?
Trading in rough rice is a way to bet on higher inflation. The US Federal Reserve Bank and central banks around the world have kept interest rates low for a long time. These policies are likely to continue since they support consumer borrowing and spending.
Low interest rates have produced speculative bubbles in many asset classes, but not yet in agricultural commodities. Yet food remains the most fundamental necessity. Food commodity prices could see the largest increases if the economy experiences higher inflation. Rough rice prices could benefit from these conditions.
Diversify Your Portfolio
Most traders have the vast majority of their assets in stocks and bonds. Commodities such as rough rice provide traders with a great way to diversify and reduce the overall risk of their portfolios.
Risks of Trading in Rough Rice
Traders should also consider the risks of trading in rough rice:
- A global economic slowdown could reduce demand for all agricultural commodities including rough rice.
- A sustained drop in the price of other agricultural commodities could siphon demand away from rough rice. While usually, such price drops are temporary, there is no guarantee that this will be the case in the future.
- Changes in consumer preferences in India and China have the potential to depress demand for rough rice. These countries may adopt more Western dietary norms in the future. This could lead to reduced demand for rice products.
Important: This is not investment advice. We present a number of common arguments for and against investing in this commodity. Please seek professional advice before making investment decisions.
Further Reading
Also see our guides on stock, CFD, and commodity brokers to find out which online trading brokerages are available in .
