Trading in rice futures resumes at ominous time

When the Tokyo Grain Exchange, operator of the nation’s largest agricultural bourse, bet its future on rice trading, it didn’t expect radiation fallout would be part of investor decisions and volatility.

The exchange will list rice contracts Monday for the first time since the start of World War II to boost flagging volumes and profit. The resumption comes amid concern that fallout from the stricken Fukushima No. 1 power plant may spread to crops after it was found cattle had been fed cesium-tainted rice straw.

“The nuclear disaster adds to factors that could influence prices,” said Takaki Shigemoto, a commodity analyst at research company JSC Corp. in Tokyo. “Rice futures may attract speculative money.”

Trading may be volatile as investors weigh the impact of possible suspension of shipments from growing areas and lower consumption on health fears, Shigemoto said. The bourse aims to boost overall volume on the exchange to 40,000 lots a day on average by March from 9,626 lots a day in June after listing the new contract, President Yoshiaki Watanabe said last month.

Commercial stockpiles of rice, a Japanese staple, may drop to the lowest level in four years in 2012 after the March earthquake and nuclear disaster curbed output, possibly spurring the release of reserves, the farm ministry said.

Faced with criticism from consumer groups and opposition party politicians that lax government control has endangered food safety, the ministry has tightened rice screening before the harvest begins in eastern Japan.

The government ordered Fukushima and 13 nearby prefectures to test rice samples before the harvest. Authorities will ban shipments from areas where they find grains containing cesium exceeding 500 becquerels a kilogram. Rice production in Fukushima and neighboring Ibaraki, Miyagi and Iwate prefectures amounted to 1.56 million metric tons last year, out of the nationwide total of 8.5 million tons.

“If the government bans rice shipments on discovery of tainted supplies, that will reduce supply and may boost rice futures,” Shigemoto said.

Average prices of new-crop rice fell 12 percent to ¥12,707 per 60-kg bag in the 10 months ended June 30, compared with ¥14,470 in the year ended Aug. 31, 2010, the farm ministry said on July 27. Rice traded in Chicago has jumped 46 percent in the past 12 months and is the best performing grain this year as U.S. acreage slumps.

Japan is self-sufficient in the grain as the government protects growers from foreign competition with a tariff on imports of ¥341 ($4.35) a kilogram.

Resumption of rice futures comes after an income-support program for growers was introduced last year, replacing a price control system that ensured farm incomes. The change increased volatility, raising the need to introduce a hedging tool for producers and distributors.

Kansai Commodities Exchange, based in the city of Osaka, will also start trading domestic rice futures Monday. Trading was suspended in 1939 when the government put grain production and distribution under its control to secure supplies during the war.

The two exchanges will list yen-denominated contracts, with deliverable grades including Koshihikari, a popular brand grown in Japan. Imported rice is excluded from physical delivery at the exchanges because the government maintains control over foreign purchasing and sales.

The Tokyo exchange selected nonglutinous brown rice produced in Chiba, Ibaraki and Tochigi as standard grade for the contracts. Deliverable brands include rice grown in 12 other prefectures including Fukushima, Miyagi and Iwate, where cattle were contaminated with radioactive rice hay. Tainted beef from the animals was sold at supermarkets nationwide.

“We believe the testing program will be effective in preventing tainted rice from entering the market,” Tatsuya Kajishima, senior press counselor for the Agriculture, Forestry and Fisheries Ministry, said in an interview.

Still, even if radiation is not found to have spread to rice, sufficient inventories and shrinking demand may damp prices.