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Rice futures prices crashed but El Nino could be a catalyst

Rice prices could bounce back in the coming months as the world moves into the El Nino season. Data by shows that rice futures retreated to a low of $17.67, which was much lower than the year-to-date high of $19.92.

El Nino could hurt supplies

Rice inventories have been rising sharply in the past few months, helped by good weather in key Asian countries like Thailand and Indonesia. Recent data shows that rice inventories have surged to a record high.

As a result, most importers have started ramping up their purchases in anticipation of the upcoming El Nino event. According to Bloomberg, shipments from Vietnam to the Philippines have jumped by more than 40% in the past few months. 

El Nino is a weather phenomenon that leads to higher-than-normal rainfall in some areas and extreme heat in other areas. When it happens, key Asian regions where most of the rice is grown like Indonesia, Thailand, and Vietnam see less rice production.

The most recent WASDE report showed that the total rice supplies will drop to 258.3 million cwt. That was a 1 million from what it predicted in the previous report. Production in India is expected to jump by 4 million to 136 million this year. The report added:

“Trade is unchanged at 55.8 million tons with an increase for India offset by a decrease for Thailand. Total use is increased 0.8 million tons to 523.8 million, mainly on an increase in use for India.”

In a note, an analyst told Bloomberg that there was no supply issues for now. He added:

“If anything, there is a massive rice surplus and fears that the crops, which look good, may face some issue from weather.”

Rice price forecast

rice price

The daily chart shows that rice price futures soared to a high of $19.93 on June 12. It then staged a strong bearish breakout last week. It moved below the important support level at $18.35, the highest point on January 26th.

Despite the bearish breakout, the price remains slightly above the 50-day and 100-day exponential moving averages (EMA). It has also formed a down gap. The price is above the ascending trendline shown in red. 

Therefore, there is a likelihood that rice prices will continue falling as sellers target the next key support at $17. A move above the key resistance level at $18.35 will invalidate the bearish view. QR Code

Published Date: June 20, 2023

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