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How to trade rough rice futures contracts and the risks


How to Trade Rough rice Futures: Costs and Different Brokers

You can trade futures by opening a trading account with a trusted broker who handles futures trading. CME Globex, CME Clear Port, AmeriTrade and Etrade are some well known online platforms for trading futures.

Most brokerages will charge the National Futures Association fees, which is roughly around $0.02 per side, along with a commission (which can range from $0.025 to $3 and more, per contract per side). You will also have to pay an exchange fee, which will vary depending on the exchange and the specific contract you are trading. Be sure to look at the fine print and add up all the fees into your cost.

Rough Rice Futures Contracts

Rough Rice contracts trade on the Chicago Mercantile Exchange (CME), under the symbol “RR” in the open outcry method and “ZR” on the electronic platform. The contract is for 2,000 hundredweights (CWT) or around 91 Metric Tons of U.S. No. 2 or better long grain rough rice that meets certain specific conditions. The contract is priced in cents per hundredweight and the contract is deliverable in January (F), March (H), May (K), July (N), September (U) and November (X).

Risks

Price movements in the rough rice futures market are sometimes unpredictable and erratic. As with any other commodity futures, prices of rough rice futures can move up or down if there is a sudden surplus of rice or if consumption falls sharply.

Rough rice futures trading is accompanied by several risks affecting the underlying rough rice. For instance, rough rice futures prices jump drastically whenever there is news from the emerging markets. Since China and India are the largest producers and consumers of rough rice worldwide, any change in demand in these countries will cause prices to fluctuate in the futures markets. As China develops, more and more rural consumers are entering the market for rough rice, creating a huge impact on rough rice imports and futures prices. Climate changes in South Asia and the U.S. also impact prices. This is specially true for availability of water, since rice is a water-intensive crop.

Fuel and fertilizer prices also affect rice futures prices. Any import bans or famine can cause rapid inflation or deflation in the price of rough rice, and hence affect the future market.

It is a very thinly traded market, so any adverse news has more than normal impact of rough rice futures prices.

Traders can get more news and information on rough rice trends by studying publications and announcements from USA Rice Federation, USDA, Asia Rice Foundation and the California Rice Commission. Traders with a deep knowledge of the grain industry are best suited to trade rough rice.

There are also the risks typical to financial trading. Rough rice futures have a lot of leverage, which allows traders to control a large amount of commodities for a small amount of investment. However, it also means that even a small, unfavorable change in the prices of rough rice can drastically impact a traders’ entire equity.

While Rough rice futures are accompanied by much price volatility and price risk, they offer a good opportunity, for traders well versed with the industry, to make profits by managing their risks wisely.

 

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