Setting Up For A Rally In Rice?

January 24, 2011

The fundamentals look strong for this often-overlooked grain. But how should investors play it?

 

Jim Rogers, a fervent agricultural bull since he launched the Rogers International Commodity Index in 1998, recently cited rice as his favorite grain. He told MoneyNews:

 

"If rice goes down, I will buy more rice. Rice has a great future for the next few years."

 

When Jim casually name-drops a commodity—especially a grain—it's usually advisable to take a closer look at it. So let's dig into the investment-worthiness of rice and see if we should order up a side dish for ourselves.

 

Lower Acreage, Lower Supply

A recent Wall Street Journal article reported farmers are reducing acreage for rice by as much as 30 percent in favor of higher-priced cotton and soybeans:

 

A shift in planting likely will come in the spring when farmers sow their fields in Arkansas and Louisiana, analysts said. They are projecting as much as a 30% cut in acreage devoted to long-grain rice. Growers will turn to soybeans, cotton or other crops after becoming frustrated with rice prices, which have lagged behind other agricultural commodities.

 

With corn, soybeans, cotton and rice often competing for the same land, the sharp speculator can often do quite well buying the laggard(s)—which, in this case, is rice.

 

Rough Rice

Rough rice is still well off its 2008 highsand with potential acreage reductions on tap, we could see a breakout soon. (Source: Barchart.com)

 

A price-lagging grain often rallies eventually because farmers usually neglect planting it; they instead plant the crops that have already rallied, thus creating a shortage in the laggard grain and inevitably higher prices.

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