Gold has been grabbing all the headlines lately as the price for
the precious metal has hit record highs.
In the weeks and months to come, however, you're going to be
hearing about a far more pedestrian commodity: Rice.
The price of rice has started to climb based on reports that
both India and the Philippines are looking to import record
quantities. India lost 18% of its rice crop to drought this year.
For the first time in more than 20 years, it may have to become a
net importer of rice.
While drought plagued India, the Philippines had the opposite
problem: Too much rain. The country lost an estimated 1.3 million
metric tons of rice -- at least 8% of the domestic supply for this
rice-importing nation -- in a series of strong typhoons that hit
the region during the past three months.
Along with most commodities, rice hit record prices last year,
with the futures markets hitting a peak of $25.07 per 100 pounds in
April. And, also like most commodities, the price of rice tumbled
as the global recession unfolded. But even though the price of
almost every other commodity has been rebounding, boosted by a
weaker U.S. dollar, the price of rice has been flat-lining at
In the past few weeks, India and the Philippines started to buy
rice in the world market. Rice futures have started to climb as a
result, up roughly +15% in the past three weeks.
Some analysts have argued that the price of rice could double
from here. Others argue that this year's healthier crops produced
stockpiles in Thailand and Vietnam that could help mitigate at
least part of any price increase. But one of the biggest unknowns
going into a period of potentially higher rice prices…
. . . is panic.
Last year's record rice prices started a wave of civil unrest.
Rice prices also started panic-driven hoarding. Bulk retailers like
Sam's Club and
Costco (Nasdaq: COST)
began rationing rice in an attempt to keep it on their shelves. If
the market starts to catch even a whiff of panic in the air, the
price of rice could skyrocket.
Unless you dabble in the futures market, there's no real pure
rice play for American investors. When rice hit record prices last
year, investors wondered why there was no rice-based
exchange-traded fund (
). More than a year later, they are still wondering why one of the
world's largest crops still lacks an investment vehicle of its
Some investors are using general agriculture ETFs like
PowerShares DB Agriculture (
iPath DJ-AIG Agriculture Sub-Index (
as proxies for rice. But neither of these funds has an interest in
Elements/Rogers International Commodity Agriculture (
is one of the only funds that does have rice as a holding, but only
a meager 1.43% of the portfolio. Still, it's more rice than you'll
find in any other exchange-traded product.
But I find myself thinking back to when crude oil prices were
coming off their lows.
Instead of consumers hoarding oil, we had cases of institutional
hoarding. Speculators and investment houses started buying up oil
on the cheap and storing it, hoping to sell it for a higher price
in the future. If this starts to happen with rice, a company with
grain storage capacity, like
Archer Daniels Midland (
may be the beneficiary.
ADM has rebounded +44.2% in the last year, although it's still
-33% off its April 2008 high. And with a forward P/E of roughly
11.5 and a PEG ratio less than 1.2, ADM may be a better value bet
on rising rice prices than any of the alternatives.
Editor: Stock of the Month
Disclosure: Amy Calistri does not own shares of any security
mentioned in this article.