Global Rice Market – Americas

US Long grain rough rice futures: how they work.

Watch the seasonal tendencies, the basis and the larger trends in the market, Americas, and Asia. That is what Firstgrain does: it informs its readers not just what is going on but what is likely to transpire in the future based on seasonal tendencies and the big trends in the market.
A farmer seller wants the price seasonals to work in his favor. There are two seasonals that bear watching: the cash price seasonal and the basis seasonal. Each in the US is located in a region and the rice in that region tends to go to outlets and buyer that are close by the farm. The marketing out of the annual supply drives these seasonal rice price tendencies.

A seller example:

Region: North Arkansas

This area is the largest production area in the US for long grain rice. From I 40 in Arkansas to the northern limits of growing in Missouri most of the price discovery happens. Both large Arkansas cooperatives are located in Arkansas but also in Missouri and Mississippi with one cooperative owning a mill on the other side of the river in Greenville. The uniting force in the Upper Delta is the Mississippi River down which flows a lot of the rough rice into the world market. It was the trade in rough or paddy rice that jump started the trading in rice as the contract matured so did the trading in rough rice for export in the US. Without the trading and export of rough rice by barges down the river, it is doubtful we would have a rice futures contract in the US. President Bill Clinton was instrumental in implementing the NAFTA agreement in 1994. Like the WTO for California a bit later, NAFTA gave the US industry a market it did not have before. Trade agreements can make or break a futures contract.

There are two aspects of the US long grain market: the cash price and the futures price and their interaction through the basis, the cash price minus the futures price over time. When we say over time, we mean the seasonal tendencies of this relationship. The goal of a farmer seller is to minimize the discount of his cash price to the futures. Put another way the farmer wants to sell or price his basis at the highest value to futures during the marketing year. The pricing of basis and of the flat price often do not occur at the same time. Basis (cash minus futures) plus the cash selling price is what a farmer gets for his rice.