I picked up
some literature from the
International Rice
Research Institutethat got me thinking about agribusiness.
Rice is a popular crop worldwide. The dried grains
maintain edibility for decades. Farmers in developing
countries need decent prices for this staple crop, and their
customers need a high-nutrient diet. Analysts need good data
sources for rice production.
The most obvious data sources cover the basics.
Oryza lists
rice price quotes for multiple qualities and grain types, useful
for importers and exporters who traffic in specific lines and must
account for logistics.
NASDAQ's quoteonly lists one price for CBOT rough rice, which
is probably sufficient for US-based producers but insufficient for
analysts tracking global rice production. The
UN's FAO reports regular prices for multiple foodstuffs,
including the world rice price.
IFPRI's Food Security Portal defines the world rice
priceas "the monthly average of weekly prices for White Broken
Rice, Thai A1 Super, and FOB Bangkok." Now we're getting to a
broad, singular metric. Aggregate market data is available in
the
FAO Rice Market Monitor (RMM),
FAO Rice Price Update, and
USDA Farm
Service Agency"Rice Reports" (check the website's Food Grains
Analysis section).
A quick perusal of Google search results related to rice
farming reveals the ability to flood a field as a crucial input.
Cold weather can prevent timely flooding. No farmer
wants a frozen rice paddy. I don't recall seeing any rice
fields whenever I visited Wisconsin, but that cold state does have
plenty of cranberry bogs. I expect California's continuing
drought to seriously harm water-intensive crops like rice.
The microeconomics of farm management is beyond the scope of
my blog.
There is no pure-play tradeable security covering only the
rice subsector of agribusiness. Commodity ETFs and
agribusiness sector ETFs have only limited rice exposure.
Adventurous rice investors may look to
CME Group's Rough Rice Futuresfor contract
exposure. Rough rice futures can be a hedge for farmers,
traders and others who are directly exposed to US rice production
and NASDAQ's price quote, but these futures do not necessarily
correspond to FAO's world rice price. Arbitrage is only
possible when the same commodity has a different price in two
markets. The US rice price and the world rice price are not
the same thing, just as the WTI oil price is not the Brent price.
Perhaps the rice price spread between the US and the world
can tell us as much about production and distribution costs as the
WTI-Brent crude spread.
I have noted that other commercial data services exist to
track the rice business, but they mostly repeat the free data
anyone can get from the USDA and FAO. The analyst community
needs more than price knowledge to track the rice ROI.
Weather, logistics, soil quality, and regulation all matter.
Energy utilization also matters; fertilizer needs ammonia and
natural gas, and pesticides need petroleum. The very
divergent prices for rice make farming a challenge. I am glad
to be an analyst, and not a rice farmer.
Full disclosure: No exposure to rice-related financial
instruments at this time. The author does frequently eat
rice, and has a few bags of the stuff at home.