Views Update: Turning Bearish Rice
We have initiated a bearish view on front-month CBOT rough rice in our commodities strategy table, as prices are approaching resistance and we expect them to head significantly lower in the coming quarters. Three factors underpin a negative outlook for rice prices. First, technical indicators point at an imminent decline in prices. Second, Thailand's government is exhibiting signs that it will scrap its subsidy policy, which has been a key supportive factor for CBOT rice prices over the past year. Thirdly, the overall supply picture remains very bearish for prices, with global surpluses and stocks increasing on the back of the strong ongoing 2013/14 global crop. We have chosen to express our bearish rice view through CBOT prices due to the relative liquidity of the contract versus Asian equivalents.
All technical indicators point to imminent weakness in rice prices. Prices are now approaching resistance that comes in at US$16.75/cwt, while the relative strength index (RSI) is in overbought territory on the daily chart, to levels at which prices have typically recorded a significant decline.
Thailand's government is increasingly showing signs that it intends to scrap its rice subsidy programme and release part of its bulky rice stocks in the international market, which will prove bearish for prices. Indeed, the scheme is currently one of the most supportive factors for international rice prices, as it has made Thai exports uncompetitive and led to a sharp drop in outward shipments, which usually account for over 30% of global exports.
|Front-Month CBOT Rough Rice, US$/cwt (daily chart) & RSI (below)|