The Learn About Futures Insider: Rough Rice

This cereal has been a staple for human consumption for thousands of years and is now an integral part of the diet of nearly three billion people worldwide. From its humble origins in ancient Asian cultures, rice cultivation spread across the continents. Many international exports of rice are confined to the hulled and polished grains; however, the CME Group’s “rough” rice contract - to which the specifications will refer – encompasses “paddy” rice, which has not had the husks and bran removed.

Contract Size: 2,000 hundredweights (CWT) (~ 91 Metric Tons)

Price Quote & Tick Size: US Cents per hundredweight; minimum tick size is 1/2 cent per hundredweight ($10.00 per contract)

Contract Months: January (F), March (H), May (K), July (N), September (U) & November (X)

Trading Specs: Open outcry trading is conducted from 9:30 a.m. - 1:15 p.m. CT Monday – Friday. Electronic trading is conducted via the CME Globex® trading platform from 6:00 pm - 7:15 am and 9:30 am - 1:15 pm Central Time, Sunday - Friday

Daily Price Limit: $0.50 per hundredweight expandable to $0.75 and then to $1.15 when the market closes at limit bid or limit offer. There shall be no price limits on the current month contract on or after the second business day preceding the first day of the delivery month.

Trading Symbols: ZR, RR

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Past performance is not indicative of future results.
***chart courtesy of Gecko Software

Rough Rice Facts

Rice can be an annual or perennial plant grown in several areas across the globe.

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Labor intensive, rice cultivation also requires plenty of water. Young seedlings are normally settled in flooded fields and once the small flowers are pollinated by wind, the grass will produce small seed grains. Each grain is covered in a layer of bran and a husk with an approximate proportion for each being 22% husk, 10% bran, and 68% rice. Rice without the husk is what is commonly known as brown rice. If the hulls and bran are removed, the resulting grains are milled – or white – rice.

Types of rice are often categorized by the length of the grain. Typically, long grain rice is slender and, when cooked, lower starch content yields lighter and fluffier rice. Medium grain rice is shorter and wider and more likely to cling together while short grain rice is squatter still and stickier and normally chewy when cooked. There are other specialty rice types which may have other cooking or aromatic qualities such as Basmati rice. A seemingly endless parade of rice cultivars exists with the two most common being indica and japonica.

Select global consumption, exports, and production of rice are as follows:

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**Data courtesy of the USDA

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**Data courtesy of the USDA

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**Data courtesy of the USDA

In the United States, rice is grown in Arkansas, California, Louisiana, Mississippi, Missouri, and Texas. Nearly 50% of the acres in production are in Arkansas - and while the United States is minor in terms of global production, it still plays a significant role in exports with much of the rice produced heading to Mexico and Central America.

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**Data courtesy of the USDA

Price highlights for this market include:

* As a key cereal grain on the global level, rice has featured prominently in headlines through the decades. In India in 1943, a famine struck and prices on the local level soared to 105 rupees per 80 pounds (a maund) versus a price level of 3 rupees seen prior to the war. Calcutta saw waves of violent protest in 1959 over the "high price" of rice. Cambodians rioted in 1975 for the same reason, blaming Chinese merchants for high costs of the staple.
* In the 1980s, rice prices in the United States played with levels below $4 per hundredweight as increased exports were forecast from Thailand. By 1987-88, the concern over smaller supply had caused futures market prices to spike above $12. Prices would bounce on either side of $8 over the next few years, finally dipping below $6 again in early 1993. By the end of that year, a poor harvest in Japan would lead to removal of a ban on rice imports, spiking prices above $12 again.
* At the start of 1994, world rice stocks were reported to be at 20 year lows, supporting 1993's price gains. However, bumper crops in major grains would drag prices lower by the end of the year.
* After bumping the $6 level again, prices trended higher through 1996, partially supported by crop concerns arising from the El Nino weather phenomenon, reaching above $12 per hundredweight before reversing. Ample world food supplies pressured prices, bringing them to fresh lows in the early 2000s, dipping below $4 per hundredweight to $3.43.
* The promise of reopening exports of US rice to areas in the Middle East like Iraq helped prices recover, concern over lower stocks helped pop prices back above $10 per hundredweight.
* Prices retreated briefly through 2005 before resuming a fresh uptrend. This movement was taken over by a huge spike to fresh high price territory following Cyclone Nargis striking the important rice production areas of Myanmar (Burma) during harvest time. Speculation over crop damage and loss helped fuel a panic that eventually led to several retailers limiting the purchase quantities for bulk rice. By the time the fears subsided, rice futures prices had hit $24.68. Prices would be less than half that level a year later, but remained supported above $10 until 2010.
* In 2011, prices spiked again, touching above $18 per hundredweight.

Key terms for this market include:

Rough rice - As mentioned in the introduction, this refers to “paddy” rice which still has the husks and bran.
Paddy - a paddy field is a flooded bit of arable land used for rice growing

Key Uses

As food, rice is not as high in protein as other cereal crops, but it remains a good source of vitamins and minerals, is low in calories, and contains only trace fats. Rice can also be enriched with added nutrients which may be lost during processing. Rice is also ideally suited to manufacturing various food products including cereal, snacks, and baby food. Rice is also used in brewing beer.

Besides the precious grain, rice bran is also an excellent source of nutrients. It is often used as livestock feed. Rice bran oil can be used for cooking and hulls can be burned as fuel or used as mulch.



Fundamental Reports – Rice is included in the crops reviewed in the monthly WASDE report and Crop Production and the USDA also releases a monthly report entitled “The Rice Outlook”.

Weather – Besides the basic agricultural concerns regarding temperature and rainfall, rice production areas across the globe may also experience extreme weather issues like cyclones and hurricanes which may impact prices. Notably, the possible damage from Cyclone Nargis, which hit Burma (Myanmar) in 2008 was widely cited as a contributing factor to the following fear of rice shortage and jump in prices.

Disease and Pests – Rice crops can be at risk for any number of fungal or bacterial diseases. Stink bugs and weevils are major pest concerns. Other diseases can be related to factors like zinc deficiency or salt water damage.

Geopolitical Issues – Attention should also be paid to international issues including the foundation of the Organisation of Rice Exporting Countries (OREC). If founded in its entirety by 2012, as proposed by Thailand’s former Prime Minister, it is unclear whether this union of 21 rice exporting nations (including original member nations Cambodia, Laos, Myanmar, Thailand, and Vietnam) would aim to fix prices similar to actions by OPEC. The proposed purpose is to stabilize food production.

Environmental Impact – Concern exists regarding the high water input needs of rice crops. However, rice growing is often viewed as a positive force providing habitats for waterfowl and wetland dependant organisms in the United States. Flooded rice fields are often cited as a significant source of methane emissions.

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