Back to the rice futures trade

In Japan, futures trading for rice started in 1730 at Dojima, Osaka, with the Tokugawa shogunate’s approval. Such trading ended in 1939 as the government’s wartime control of the economy was strengthened. On Aug. 8, futures trading for rice resumed in Tokyo and Osaka for the first time in 72 years.

The farm ministry approved the trading on an experimental basis. It hopes that futures trading will lead to the posting of bellwether prices for rice, thus helping farmers and traders evade risks in price fluctuations. If prices appear likely to greatly fluctuate, the ministry will order the Tokyo and Osaka exchanges to restrict trade volume or halt the trading.

After a two-year trial, the ministry will decide on whether to turn the trading into full-scale futures trading.

Trading in Tokyo and Osaka saw a tumultuous start, apparently affected by the view that rice supplies will become tight because of the March 11 earthquake and tsunami, the meltdowns at the Fukushima No. 1 nuclear power plant, and recent heavy rains in Niigata and Fukushima prefectures.

On the first day in Tokyo, buy orders for Koshihikari rice from the Kanto region flooded the exchange and trading was suspended several times. Thus an initial trading price was not formed. The initial price was formed only on the second day — ¥17,280 per 60 kg for January 2012 delivery.

In Osaka, Koshihikari rice from the Hokuriku region for January 2012 delivery at first fetched ¥19,210 per 60 kg, much higher than the reference price of ¥13,700. It later fell to the limit low of ¥18,910. In Tokyo and Osaka, the prices were higher than the spot prices.

If prices in futures trading start serving as bellwether prices, this will help rice farmers when they work out their farming plans. But the Central Union of Agricultural Cooperatives (JA-Zenchu), which handles some 60 percent of rice in distribution channels, has refused to take part in futures trading, probably because of concern that the union’s influence in determining rice prices may wane.

If participants in futures trading are few, there is the possibility that speculators will turn it into a money game. Utmost efforts must be made to ensure transparency in the formation of prices in rice futures trading.