Should weather problems surface in South America for corn and soybeans, as they typically do during this timeframe, and the prices for corn and soybeans rally from here, the job of getting an increase in U.S. rice acres will be even more difficult, if not impossible. This is a very explosive situation.
Rice is in a classical demand-driven bull market with insufficient supplies. Such a combination leads to super price spikes in short periods of time. As we already have seen with the parabolic move in Brazilian rice prices earlier in the year, U.S. rice futures have quite a price parabola of their own waiting just ahead.
The majority of all major U.S. futures rice price spikes have occurred from the fall to the following spring. The seasonal stage has been set for another bull move. Speculators remaining near record shorts leading into this Western Hemisphere rice supply crisis only add additional fuel to the fire. Speculators thinking that apparently adequate Asian rice supplies will save them may be in for a rude and painful awakening.
They evidently have not done their homework on U.S. rice futures. If they had done so, they would understand that outside of the 2008 Asia export ban induced bull market in rice, all other rice bull market price spikes have occurred as a result of bullish Western Hemisphere fundamentals. They have fleeced the rice market long enough and now it is time for them to get fleeced.
A major money flow buy signal was triggered in August 2012 and remains in effect. The two technical price charts contained earlier in this report illustrate the powerful upside technical explosiveness of this market. Both the bullish wedge formation and the bullish diamond formation complete by the middle of December 2012. That is only a few weeks away. Any breakout of these technical patterns will send the funds into a buying frenzy and will cause complacent end users to panic buy as they have played a game of chicken with U.S. rice producers for too long.
Rice prices, relative to the other grain markets, bottomed on Sept. 1 and have been moving up ever since. Over the last two weeks relative rice prices to other grains have broken out and are now in a raging bull market. Rising relative prices always lead a rise in nominal prices.
When you look at the relative U.S. futures prices to Brazilian cash prices, you also can see that both the ratio chart and the differential chart have broken out to the upside after an extended period of basing. Increases in relative U.S. rice futures prices to Brazilian cash prices always precede a large move in nominal prices.
The massive level of current U.S. rice exports has occurred without any buying from China or Brazil. Should either or both of these countries start to buy large quantities of U.S. rice over the next six months, which is likely, then Katie better forget about baring the door…it ain’t gonna make any difference.
As for the relentless drum beat of bearish news out of Asia, the situation is anything but bearish. China is buying rice like it has rarely done before. India over shipped its high-quality rice supplies in 2012 and will now be in lock down mode trying to figure out what to do next. Clearly its blistering exports in 2012 will not be repeated in 2013, and that is bullish, especially with its drought-impaired smaller rice crop.