Last Updated on 21 September, 2020 by Therobusttrader

Rough rice, also known as paddy rice, is the whole rice grain as it’s gotten from the field — with the edible part still covered by the protective hull. The hull makes up about 20 percent of the rice grain and gives it a coarse texture. When the hull is removed, what is left is the brown rice, which can be further polished by removing the bran layer and the germ to get the white rice.

Rough rice futures track the price of rough rice and trade on CME. Short term traders or hedgers who wish to gain exposure to the rough rice market will find that the futures contract is the best option on the market, compared to other available financial instruments.

Rice is regularly consumed by more than half of the people in the world, making it the most-consumed grain on the planet. But, at about 480 million metric tons per annum, rice ranks third in production scale, after corn and wheat.

Rough Rice Futures Contract Specifications

Rough Rice Futures Contract Specifications
Symbol
ZR (RR)
Exchange
CME
Tick Size
$10
Point Value
-
Contract Size
2,000 hundredweights (CWT) (around 91 Metric Tons)
Contract Months
January, March, May, July, September & November
Trading Hours
Sunday – Thursday, 7:00 p.m. – 9:00 p.m. CT and Monday – Friday, 8:30 a.m. – 1:20 p.m. CT
Settlement
Physical Delivery
Grade
U.S. No. 2 or better long grain rough rice with a total milling yield of not less than 65% including head rice of not less than 48%. Premiums and discounts are provided for each percent of head rice over or below 55%, and for each percent of broken rice over or below 15%. No heat-damaged kernels are permitted in a 500-gram sample and no stained kernels are permitted in a 500-gram sample. A maximum of 75 lightly discolored kernels are permitted in a 500-gram sample.
First Notice Day
Last business day of month preceding contract month.
Last Trading Day
The business day before the 15th calendar day of the contract month.
Last Notice Day
-
Position Limit
There is no limit in the spot month.

Source

Major Uses of Rice

Rice is a very important commodity. Although about 95 percent of the world’s rice production is consumed by humans, rice is used in many other ways. Here are some of the major uses of rice:

Staple food: It is a staple in the diets of over three billion people from different parts of the world, including Asia, Africa, Southern America, and the Middle East.

Livestock feed: The bran and rice polish, which are by-products of milling, are used in making livestock feed.

Beverages: Broken rice is used in breweries to produce alcoholic beverages, such as rice milk and sake.

Biofuel: The hull and straw are used in the production of biofuels.

Fertilizer: By-products of rice milling can be used to manufacture fertilizer.

Industrial chemical: Hulls are used in the production of furfural, an industrial solvent.

Others: The straw is used for roof thatching and in making mats.

Where Is Rice Produced?

There are two main strains of rice — Japonica and Indica — and each grows in different climatic regions. The Indica strain is grown in tropical and subtropical regions, such as India, Southern China, Bangladesh, Vietnam, Thailand, Indonesia, and Brazil. Japonica strains prefer the temperate regions, like Japan, Portugal, Italy, Spain, and the US.

While rice can grow in different parts of the world, most of the rice consumed all over the world are produced in Asia, Latin America, and the Middle East. The top 10 rice-producing countries are China, India, Indonesia, Bangladesh, Vietnam, Thailand, Burma, Philippine, Brazil, and Japan. They account for more than 80 percent of the global rice supply.

These countries also consume a lot of rice and, in fact, depend on it as a staple food. Indonesia, Bangladesh, Japan, and the Philippines barely produce enough for their domestic consumption, despite being in the top 10 producers.

How Is Rice Produced?

Rough Rice Production

Rough Rice Production

The six main stages involved in rice production are:

  1. Planting
  2. Harvesting
  3. Drying
  4. Hulling
  5. Milling
  6. Packaging

Planting: At this stage, rice plants are grown to produce the grains. The farmer prepares the soil by providing enough water supply and then soaks the rice seeds. Rice is typically planted in flooded fields.

Harvesting: Once the grains ripen, the farmer can drain the field and start harvesting. Rice normally matures in about three months after planting.

Drying: The harvested rough rice is dried to reduce the moisture content to about 20%. Drying can be done naturally under the sun or by the use of a machine.

Hulling: This is the stage where the hull is removed to produce brown rice. The brown rice contains the bran layer which is rich in vitamins and minerals.

Milling: White rice is produced from brown rice through milling. Here, the brownish outer bran layer is removed, and the grain is polished.

Packaging: Here, the rice is packaged and ready for use.

Why Trade Rough Rice Futures?

There are many reasons to trade in soft commodities, especially rough rice futures. It offers unique opportunities because the demand for it is rising due to the increasing global population. And, there may be a shortage of supply due to the effects of climate change. Apart from the potentials for growth, being a commodity, rough rice futures can be used for portfolio diversification and to hedge against inflation.

Increasing demand: Although North America’s and Europe’s population doesn’t grow that much, the global population is on the rise due to the high population growth rates in Asia, Africa, and the Middle East. Interestingly, rice is a staple food in these three regions, so their rising population will drive an increase in the demand for rice.

Shortage of supply: Because of the issue of climate change and global warming, there is a growing incidence of drought in different parts of the world, and this could affect rice production and supply. The implication is a potential rise in the price of rice.

Portfolio diversification: Traders and investors can add rough rice futures to their asset portfolios for diversification purposes because it doesn’t usually correlate with other asset classes.

Hedging against Inflation: As central banks continue the practice of lowering the interest rates to encourage borrowing and spending, commodity prices may increase due to rising inflation. Rough rice is one of the commodities that can be used to hedge against inflation.

Rough Rice Trading Strategies

Finding trading strategies in the rough rice futures market isn’t that easy. The market is not very liquid, which means that we pay quite a lot in slippage. As such, most trading strategies found in this market aren’t tradable when slippage costs are taken into consideration. 

If you are interested in trading edges for the futures markets to build your own trading strategies, be sure to check out our edge membership

Factors that Drive the Price of Rice

Many factors can affect the price of rough rice, and they include:

  • Rice inventories
  • Trade policies
  • Demands in the top consuming countries
  • Climatic condition
  • Energy prices

Rice inventories: The dynamics of rice inventories in the biggest producing and consuming countries can have a significant effect on the price of rough rice.

Trade policies: Certain trade policies that affect the import and export of rice can have a huge impact on the price of rough rice. Trade wars between nations can also affect the prices of commodities, including rice.

Demands in the top consuming countries: Changing demands in the top consuming countries, especially China and India, will obviously affect the price of rough rice. While an increasing population may lead to more demand for rice, changes in consumer preferences may lead to a decline in demand.

Climatic condition: Rice is sensitive to water levels, so climatic conditions, like drought and heat, can affect the supply of rice. Changes in supply normally affect prices.

Energy prices: Rice production requires the use of energy-consuming machines for irrigation of the field, controlling water levels, drying grains, and milling. So, changes in crude oil prices can affect the price of rough rice.

Rough Rice Seasonality

Here is a chart that shows the seasonal tendencies of the rough rice market over 20 years.

Rough Rice Futures (RR) Seasonal Chart

Source

Rough Rice Futures Alternatives

You can play the rough rice market through any of the following ways:

  • Rough rice futures contracts
  • Options on rough rice futures
  • Agribusiness stocks
  • Agricultural exchange-traded funds
  • CFDs on rough rice

Rough rice futures contracts: The commodity futures market is the easiest way to trade in the rough rice. Rough rice contracts trade on the Chicago Mercantile Exchange (CME) Globex electronic platform, which gives traders from any part of the world access to the commodity market. CME’s rough rice contracts are settled by physical delivery on expiration, and the expiration months are usually January, March, May, July, September, and November.(See table in the article for more information)

Traders who are not interested in the physical asset can avoid it by rolling over their futures contracts before expiration. Apart from the CME, rough rice trades on a few other exchanges, including the Multi Commodity Exchange (MCX) of India.

Rough rice options: The options market is another easy way to trade rough rice. An options contract gives the buyer the right to buy or sell the security at the strike price on or before the expiration date. The CME offers options contracts on rough rice futures with different expiration dates.

Agribusiness stocks: Another way to gain exposure in the rough rice market is by investing in the stocks of companies that deal in rough rice. However, there is currently no company listed on the NYSE that deals exclusively in rough rice. Alternatively, one can buy the shares of allied agribusinesses that supply farmers with fertilizers, seeds, and pesticides.

Agricultural exchange-traded funds (ETFs): ETFs trade on the stock exchanges just like stocks. While there are no ETFs that track only rough rice prices, the ELEMENTS Rogers International Commodity Agricultural ETN has rice as one of its holdings. There are other agricultural commodity ETFs, but they don’t have rice in their portfolio.

CFDs on rough rice: With rough rice CFDs, you can speculate on the changes in the price of rough rice without having to buy or sell the asset directly. There are many online CFD brokers that offer CFD trading on rough rice. However, we’re not very fond of CFDs since they tend to have quite large spreads.

Conclusion

Rice is the most consumed grain on the planet, being a staple food for more than half of the world’s population. The coarse harvested grain is called rough rice, and it is mainly produced and consumed in Asia, the Middle East, and Latin America. There are a few ways to gain exposure to the rough rice market, but rough rice futures is the easiest way to

Cotton Futures Contract Specifications
Symbol
CT
Exchange
ICE
Tick Size
$5
Point Value
$500
Contract Size
50 000 pounds (around 100 bales)
Contract Months
March, May, July, October, December
Trading Hours
8:00p.m. - 1:20p.m. (Settles 1:15p.m.) CST
Settlement
Physical Delivery
Grade
Quality : Strict Low Middling Staple Length: 1 2/32nd inc
First Notice Day
Five business days before the first delivery day of the spot contract month, which is the first business day of that month.
Last Trading Day
Seventeen business days from end of spot month.
Last Notice Day
Twelve business days from end of spot month.
Position Limit
Cotton Futures Contract Specifications
Symbol
CT
Exchange
ICE
Tick Size
$5
Point Value
$500
Contract Size
50 000 pounds (around 100 bales)
Contract Months
March, May, July, October, December
Trading Hours
8:00p.m. - 1:20p.m. (Settles 1:15p.m.) CST
Settlement
Physical Delivery
Grade
Quality : Strict Low Middling Staple Length: 1 2/32nd inc
First Notice Day
Five business days before the first delivery day of the spot contract month, which is the first business day of that month.
Last Trading Day
Seventeen business days from end of spot month.
Last Notice Day
Twelve business days from end of spot month.
Position Limit

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