Ever thought about how to invest in rice? This article will provide 5 suggestions on how a savvy investor could get involved in this commodity market.
Direct investment. This involves an investor directly buying the land on which rice is produced. In the past this opportunity was not available to the retail investors and was only available to financial institutions.
There is however an investment now offered that will allow an investor to directly invest in arable rice land. The minimum investment level for this is 5,850 which entitles the investor to a 3 hectare plot on a 49 year lease. The projected return on this over a 5 year period is 287%.
Another popular way to invest in Rice is through a Rough Rice futures contract. This futures contract is has a symbol of ZR and is quoted on the Chicago Board of Trade (CBOT).
The futures contract is quoted as a cost per bushel which is currently around $14.50, but the contract size is 2000 bushels. Each tick is equivalent to a price change of $10.
This market is only available to high net worth investors, and many brokers will ask fir detailed financial records before they allow you to open an account.
To invest in a futures contract the investor has to deposit an amount of money in a margin account. This money covers the potential loss which an investor can suffer in a given period. If the future moves against your position you will need to top up the margin account failure to do so will lead to your broker closing your position. The minimum margin required is $2,430.
An alternative to a futures contract is an options future contract. This entitles the owner to purchase a futures contract if the price goes above a given level for a call option or to sell a future at a given price if the futures price falls below the agreed strike price. The purchase of a futures option is considered less risky than the outright purchase of a futures contract and therefore the margin requirement is lower at $250. Your loss is also limited to the premium you paid when purchasing the options contract.
A riskier strategy with Options is to write options contracts ie sell them. This opens up the investor to unlimited loss and brokers will check you have sufficient capital to cover the potential losses before they will allow you to write this contract.
Options and Futures are really only available as an investment to sophisticated investors or high net worth investors. Retail investors will be disallowed to participate in these markets by the financial regulator in their own country.
For the average investor a safer investment is to stick to Exchange traded funds. There are none specifically available for Rough Rice but a number will have a percentage holding in Rough Rice.
Elements International Commodity Index- Agriculture Total Return (RJA). Is a widely diversified index that covers a number of commodities including Rough Rice.
PowerShares DB Agriculture Fund (DBA).This index comprises a number of futures contracts of widely traded agricultural futures contracts. The movement of this index generally reflects the performance of the soft category of commodities.
The Rogers International Commodities Index (RICI) has been running since July 98. This index has a 0.75% weighting in rough rice. There is also an agricultural index which has a 2.15% weighting in Rough Rice. These indexes are constructed from a number of futures and options contracts. There are a number of securities firms in the US that enable investors to participate in the performance of this index.
For the UK investor an alternative to Futures, options and ETF's is spread betting. A number of the spread betting companies will allow you to bet on the underlying futures price as quoted on the Chicago Board of Trade. The minimum bet size is only 0.50 and an investor only requires 3250 in their account. Spread betting has many advantages over Futures and Options as the capital requirement an investor needs is much lower. This is an ideal investment in the UK as spread betting profits are tax free.
Direct investment. This involves an investor directly buying the land on which rice is produced. In the past this opportunity was not available to the retail investors and was only available to financial institutions.
There is however an investment now offered that will allow an investor to directly invest in arable rice land. The minimum investment level for this is 5,850 which entitles the investor to a 3 hectare plot on a 49 year lease. The projected return on this over a 5 year period is 287%.
Another popular way to invest in Rice is through a Rough Rice futures contract. This futures contract is has a symbol of ZR and is quoted on the Chicago Board of Trade (CBOT).
The futures contract is quoted as a cost per bushel which is currently around $14.50, but the contract size is 2000 bushels. Each tick is equivalent to a price change of $10.
This market is only available to high net worth investors, and many brokers will ask fir detailed financial records before they allow you to open an account.
To invest in a futures contract the investor has to deposit an amount of money in a margin account. This money covers the potential loss which an investor can suffer in a given period. If the future moves against your position you will need to top up the margin account failure to do so will lead to your broker closing your position. The minimum margin required is $2,430.
An alternative to a futures contract is an options future contract. This entitles the owner to purchase a futures contract if the price goes above a given level for a call option or to sell a future at a given price if the futures price falls below the agreed strike price. The purchase of a futures option is considered less risky than the outright purchase of a futures contract and therefore the margin requirement is lower at $250. Your loss is also limited to the premium you paid when purchasing the options contract.
A riskier strategy with Options is to write options contracts ie sell them. This opens up the investor to unlimited loss and brokers will check you have sufficient capital to cover the potential losses before they will allow you to write this contract.
Options and Futures are really only available as an investment to sophisticated investors or high net worth investors. Retail investors will be disallowed to participate in these markets by the financial regulator in their own country.
For the average investor a safer investment is to stick to Exchange traded funds. There are none specifically available for Rough Rice but a number will have a percentage holding in Rough Rice.
Elements International Commodity Index- Agriculture Total Return (RJA). Is a widely diversified index that covers a number of commodities including Rough Rice.
PowerShares DB Agriculture Fund (DBA).This index comprises a number of futures contracts of widely traded agricultural futures contracts. The movement of this index generally reflects the performance of the soft category of commodities.
The Rogers International Commodities Index (RICI) has been running since July 98. This index has a 0.75% weighting in rough rice. There is also an agricultural index which has a 2.15% weighting in Rough Rice. These indexes are constructed from a number of futures and options contracts. There are a number of securities firms in the US that enable investors to participate in the performance of this index.
For the UK investor an alternative to Futures, options and ETF's is spread betting. A number of the spread betting companies will allow you to bet on the underlying futures price as quoted on the Chicago Board of Trade. The minimum bet size is only 0.50 and an investor only requires 3250 in their account. Spread betting has many advantages over Futures and Options as the capital requirement an investor needs is much lower. This is an ideal investment in the UK as spread betting profits are tax free.
About the Author:
Before you consider a Rice investment, Get a free Rice Investment prospectus . Up to date Hor to Invest in Rice Information at www.riceinvestment.com, visit now!. Free reprint available from: How to Invest in Rice 5 Ways for the Commodity Investor.
