Rough Rice, when traded by commodity brokers, financial institutions and private investors, refers to the seeds of the rice plant Oryza sativa. The ‘rough’ part of the name stems from the fact that the grains have not had the outer hull and bran layers removed from them. The United States Department of Agriculture has stated that in order for rice to be considered ‘rough’, it must possess at least 50% broken or intact un-hulled rice seeds. Rice generally requires a warm climate in which to grow, and it must receive adequate hydration for the plants to flourish. It is considered one of the highest cost crops to grow. A typical rough rice futures contract is for 2000 hundredweight or 91 metric tons.
The most salient feature of rough rice as a tradeable commodity is that it is the primary food material for a large percentage of the world’s population. It has been harvested as a food since the second millennium B.C at least, and its popularity and proliferation have not diminished even slightly with time. The appeal for traders stems from the fact that only a tiny fraction of rice produced is free for export, and most is consumed by the countries it produces. This means that a small number of small producers have dominance over the export market, which opens up the possibility of potentially lucrative deals when commodity trading.
Rice futures are mainly traded on the Chicago Board of Trade (CBOT) on commodity exchange. The ticker code for the trading of rough rice futures is RR when the contracts are traded on open auction, and ZR when they are traded electronically.
The main market for rice is obviously the food market, with China, India, Vietnam, Thailand and Indonesia collectively producing a massive 70% of the total world yield. In contrast however, the US produces less than 2% of the world’s rice crop, and yet accounts for almost 12% of the world’s export. It is estimated that rice is the staple food for over half of the world’s population, and yet food isn’t even the only use that rice has. It can also be used to make alcoholic beverages such as rice beer, as well as being a cheap kind of pet food.
Rice commodity prices can be affected by a number of factors. Demand is still considered to be on the rise, particular in China and India, and this drives the price of rough rice futures up considerably, especially when considering the small amount of rough rice that is available for export. Demand is in fact believed to have risen by 40% since the 1980s. Rough rice futures can also be affected pricewise, as with all agricultural commodities, by changes in weather cycles, as rice requires a relatively large amount of water to grow correctly. In a similar vein, changes in the price of fertiliser can also drive up or lower the cost to growers, which will have a direct effect on both spot prices and futures prices.
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