How to invest in rice commodities

How To Invest In Rice Commodities On Stock Market

Introduction

 

Rice is an important agricultural and food crop.

It is predominantly grown by small farmers on plots of land less than one hectare. Rice is also used as a “wage” commodity by workers in the cash crop and non-agricultural industries.

Rice as a commodity

 
For millions of people around the world, rice farming is a source of food and income. Rice is grown across a hundred countries, with over 158 million hectares of the total harvested area and more than 700 million tonnes annual production (470 million tonnes of milled rice). It is heavily reliant on it as a source of foreign exchange earnings and government revenue in many Asian and African countries.
 

Harvesting rice

 
The grains begin to ripen three months after you plant them. The stems will turn yellow and the tops will droop. Farmers begin draining the water from the fields and harvesting at this point. To cut, thresh, and stack the grains, the use of sharp knives, sickles, or a mechanized harvester is there.
 

How is Rice Traded and Financed?

 
Rice Finance

Rice trading can be financed in a variety of ways, with receivables finance and secured financing being the most common.

Unpaid invoices, for example, are representations of receivables. They’re considered reserves, and traders can use them to obtain funding.

Rice Trading

 
Like many other agricultural commodities, you can trade rice using the same five methods. There are the following:

–  Rice contracts for Discrepancies (CFDs)

– Rice Shares

– Exchange-traded funds (ETFs)

– Rice Options

–Rice Futures

Investing in Rice

 
Until recently, retail investors could not invest directly in rice farmland. Investment funds would have been the only ones that could take advantage of this direct investment opportunity. All of that has changed now, as one alternative investment firm has launched an investment in African rice property. The investor would pay £5,850 for this investment, which would guarantee 3 hectares of prime rice land for 49 years. The investor will earn a 15 percent annual return and profit from the land’s capital appreciation. If the investor was willing to keep the investment for five years, they could expect a return of 287 percent. Only high-net-worth investors have access to this market, and many brokers would require comprehensive financial reports before allowing you to open an account.

Rice may be bought from an exchange-traded fund by a retail investor. There are no ETFs that are 100 percent invested in rough rice, but there are a few that have a portion of their portfolio invested in rough rice. Elements International Commodity Index- Agriculture Total Return is one possible ETF for the investor to consider (RJA).

Importance of rice as a commodity

 
Rice generates 15% of global human protein and 21% of global human energy per capita. While rice protein has a high nutritional quality, it has a low protein content. Rice also contains minerals, vitamins, and fiber, while milling reduces all constituents except carbohydrates.

The average rice consumption worldwide was 58 kg in 1999 and in some countries of Asia, the highest intake was 211 kg/person in Myanmar. Rice eaters and farmers make up the majority of the world’s poor: the UNDP Human Development Report for 1997 estimates that roughly 70% of the worlds 1.3 billion poor live in Asia, whose staple food. is rice.

To some extent, this is due to Asia’s large population, but malnutrition continues to affect a much greater proportion of the population in South Asia than it does in Africa. Rice is the most important commodity in their daily lives for these people. The average individual in Vietnam, Bangladesh, and Myanmar consumes 150-200 kg per year, providing two-thirds or more of total caloric intake and about 60% of daily protein consumption. Rice also accounts for approximately half of calories and one-third or more of protein in relatively wealthy countries like Thailand and Indonesia.

Factors influencing rice prices

 
  • China and India Demand
  • Inventories
  • Climate
  • Trade Policies
  • Crude Oil Prices
How to Invest in Rice Commodities

China India Demand

 
China and India are still at the forefront of every discussion of rice prices. Despite the fact that these two countries are the primary producers of rice, they consume about half of the world’s production. There are two scenarios to think about. The demand for food in India and China will rise as their populations expand. This will help to increase rice prices. However, as these countries become wealthier, they are more likely to follow Western dietary norms. This may mean more meat and other Western foods like pasta and bread being consumed.

Rice consumption can decline as a result of its traditional status as a low-cost food. For hints about future rates, traders should keep a close eye on consumption trends in these two countries.

Inventories

 
Rice inventories may provide valuable insight into supply surpluses and shortages. China has been stockpiling rice in recent years. Although other countries, such as India and Thailand, have reduced their stockpiles, these reductions pale in comparison to China’s huge increases.

The world’s largest consumer’s increased stockpiling should be a warning sign for costs. When inventories rise, the probability of a supply shortage decreases while the likelihood of a consumer supply overhang grows.

Climate

 

Weather affects the rice supply and prices, as they are for all agricultural commodities. Rice production, in particular, is extremely dependent on the availability of sufficient water. Drought conditions in major rice-producing areas can result in supply shortages and higher prices. Rice traders should keep a close eye on precipitation and temperature levels in key growing areas.

 

Trade Policies

 
Policies affecting rice imports and exports have a direct impact on prices. In the past, India, for example, has imposed restrictions or outright bans on rice exports. Fears that these policies would resurface may result in price increases.
 

Crude Oil Prices

 
Rice processing requires a lot of resources. Irrigating fields and regulating water levels on a wide scale necessitate the use of machinery. Mechanized cutters cull the crop during harvest, while other machines dry the crops. Each step of the process necessitates the use of resources. As a result, increasing crude oil prices could increase the cost of rice.

Conclusion

 
Rice is now the world’s third most grown crop. Global demand exceeds 480 million metric tonnes per year. Rice generates 15% of global human protein and 21% of global human energy per capita. While rice protein has a high nutritional quality, it has a low protein content.

Rice futures trading can benefit all parties involved. By entering the national market and de-risking themselves from price fluctuations, farmers and consumers can expect better and more predictable prices. The Indian government, which often bears the brunt of market failures, could save money on foodgrain procurement, storage, and handling.

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