Has the Rough Rice Rally Gone Too Far?

by Matthew Roma

Looking back at the Minneapolis wheat futures fiasco of early 2008, I can only wonder if there is enough fundamental news backing the doubling of the price of rice since the third quarter of 2007. On April 24, 2008, CBOT July rough rice futures hit a record above $25.07 per 100 pounds as several nations curbed sales to build domestic supplies. Worries of rice shortages spread globally, triggering near-riots.

When Minneapolis wheat traded up to highs of $25 a bushel in late February, people were talking about a shortage so severe that we wouldn’t be able to feed people, let alone animals. Now, two months later, prices are less than half.

Take a look at a chart of the Minneapolis wheat futures, and then rough rice futures below.

Minneapolis Wheat Futures

CBOT Rough Rice Futures

I see a strong possibility of a correction in the rough rice similar to what we saw in wheat, between now and July. I think prices will trade to near $10-12 per bushel. We are seeing the market currently pulling back after the release of the latest U.S. plantings report, which showed 44 percent of the crop in the ground.

I recommend buying the July rice $20 puts for $1,000 or less, not including commissions. This trade offers defined risk, as you cannot lose more than what you pay for the options. If the correction that I am looking for materializes, these options could be worth as much $16,000 to $20,000, not including your commissions ($8 - $10 of intrinsic value, at $2,000 per dollar).

Please give me a call to discuss this strategy further, or to develop a customized plan in this or other markets.

Matthew Roma is a Senior Market Strategist with Lind Plus, Lind-Waldock’s broker-assisted division. He can be reached at 866-231-7811 or via email at mroma@lind-waldock.com.

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