LRI Methodology Document

This document is intended to provide market participants with an understanding of the criteria used to determine the Live Rice Index’s (LRI) price assessments. Demeter Reports, which trades as the LRI, is a specialist and independent price reporting agency. The LRI meets a legitimate need in the physical rice market by increasing the transparency of international trade. To these ends, the LRI has instituted policies – based around IOSCO price reporting agency principles – which reflect a concern for quality and integrity in its price assessments and other content. A major component in these policies has been the formation and development of 24 individual Methodology documents which relate to the more than 80 varieties and grades of rice which the LRI assesses. These documents all contain assessment principles, physical specifications and definitions relating to the specifications. The LRI’s Methodologies are designed to enable price assessments which reflect the true market values of the rice varieties to which they relate.

Publication Dates and Assessment Deadlines

The LRI publishes price assessments through both its Daily and Weekly reports. A Daily Report is published each UK business day following the LRI’s assessment deadlines and before 13:00 GMT/BST; in the event of a UK public holiday, no LRI reports or price assessments will be published. A Weekly Report is usually published each Friday following the LRI’s assessment deadlines and before 18:00 GMT/BST; in the event of a UK public holiday, the Weekly Report will be published on the preceding UK business day. The LRI will inform the market in advance of UK public holidays.

LRI assessment deadlines are as follows:

  • Asia-Pacific: 11:30 GMT/BST on the day of publication
  • Italy and Egypt: 13:30 GMT/BST on the day of publication
  • Americas: 23:59 GMT/BST on the day prior to publication

If transactional data is submitted after these assessment periods, it will only be considered in the subsequent assessment. The dates of publication and assessment periods are subject to change in the event of outside circumstances that affect the LRI’s ability to adhere to its normal publication schedule. Such circumstances include, but are not limited to, network outages, power failures, acts of terrorism and other situations that result in an interruption of the LRI’s operations. In the event that any such circumstances occur, the LRI will endeavor, whenever possible, to communicate publicly any changes to its publication schedule and assessment periods, with as much advance notice as possible. The LRI will also notify third party providers of any changes to its publication schedule. When most businesses in a country of origin are closed for a public holiday, the LRI will typically assess prices for that origin as unchanged from the previous day’s close. However, in exceptional circumstances (including, but not limited to, ongoing crop transitions), the LRI reserves the right to alter its price assessments on days when markets are closed for public holidays.

Data Collection Principles

The LRI accepts transactional data provided for its price assessments in real-time across a wide variety of media. Data collected from the following communication methods is admissible evidence in LRI price assessments:

  • Telephone
  • Email
  • Instant messaging, such as WhatsApp or Skype
  • Face-to-face meetings
  • Trades reported by market participants on the LRI website

Transactional data is submitted by exporters, importers, brokers, traders and other market participants. The LRI endeavors to speak to both sides of the trade to ensure the continued robustness of its price assessments. Transactional data providers do not enter into a formal agreement with the LRI to provide pricing information. Each providers’ relationship with the LRI is based on mutual trust: the LRI does not reveal the sources of its information but expects any data which is submitted to be as accurate as possible. In the event of a breakdown of mutual trust, the LRI’s relationship with the concerned provider will be internally reviewed. The LRI aims to encourage transparency within the market and asks transactional data providers to submit all relevant information for consideration in the assessment process. The LRI expects transparency to improve over time as the tolerance of, and appetite for, transparency increases. The LRI hopes that more and more market participants will want to take an active role in the process, helping to ensure that LRI price assessments become increasingly robust. Benchmark price assessments represent selected rice grades and varieties that the LRI considers to be especially significant to global trade due to the extent they are traded, such as Thai 5% broken white rice. The LRI will concentrate its price discovery efforts predominantly on benchmark price assessments (which are labelled as such in the Index with this symbol - Benchmark ). Related price assessments may be derived from these benchmarks and vice versa.

Assessment Principles

The LRI’s price assessments are derived independently, impartially and with as much transparency as the market allows. The LRI has no financial interests in the rice trade and has no positions in the market. LRI price assessments are intended to reflect the true market values of the varieties and grades which are traded in the open market and thus the actual level of the market. The LRI’s price assessments are based on transactional data, such as contracts, reported trades, bids and offers submitted by market participants each day which are subsequently interpreted and assessed by the LRI’s dedicated market reporting team.

To ensure that price assessments are as robust as possible, the LRI will consider the following forms of transactional data in order of priority:

  • Confirmed transactions in the form of contracts
  • Reported transactions which are not substantiated with contracts
  • Offers that are open to the marketplace as a whole, with standard terms
  • Bids that are open to the marketplace as a whole, with standard terms
  • Indicative values, clearly described as such
  • Reported transactional activity heard across the market, clearly described as such
  • Other such data that may be relevant to LRI assessments, such as historical LRI price spreads or local market prices

The LRI’s objective is to ensure that the submitted transactional data which is utilised as the basis for LRI price assessments is of the highest quality. All transactional data is factored equally for use in a particular assessment, as long as such data is deemed repeatable and within the established specifications for each product. Price assessments will always be based on the information which is deemed to be the most robust and, when available, will be based on actual transactions and bids and offers in the market. The LRI uses such information to determine a typical and repeatable market level for the product being assessed. LRI price assessments do not reflect an average of the transactional data reported over the day but are intended to reflect a snap shot of the actual level of the market at the time of the assessment’s close.

When the terms of a contract, bid or offer vary from the standard as defined in the assessed products’ relevant LRI Methodology document, the market reporting team will attempt to factor the most relevant differentials into price assessment through the process of normalisation and reserve the right to disregard anomalous factors. The location, shipment-size and product quality may be aligned with the specifications set out in the relevant LRI Methodology document through normalisation. By surveying markets and observing the economic impact of variance from the base standard reflected in the LRI’s assessments, the LRI market reporting team regularly normalises disparate information from the diverse physical rice market back to the standards reflected in the LRI’s price assessments.

The LRI’s aim is to determine the full circumstances surrounding any contracts, bids or offers including details of quality, specifications, quantity, packing, delivery basis, shipment period, payment terms, documentary requirements and any other terms that may affect the price and to use this information to determine a typical and repeatable market level for each individual rice standard. This could include testing reported bids and offers in the market through cross checking with other market participants. Reported transactions should be arm’s-length transactions between non-affiliated companies. Transactions involving counterparties for whom trade with the majority of market participants is restricted may be discounted. This is because the transacted price may be inflated or depressed relative to open market prices, as a result of the special relationship between the companies involved. Distressed cargoes will be discounted in any assessment. Term deals, including large government-to-government deals, will also be discounted.

The LRI monitors the spread between different origins, varieties and grades and use these in the alignment of our price assessments. Where possible, we may also monitor, calibrate and utilise the forward curve (i.e. the prices for future delivery) of certain varieties and grades of rice.

The vast majority of assessed prices are published on a Per Metric Ton (PMT) basis in U.S. Dollars. While the LRI will sometimes refer to some U.S. price assessments in their hundredweight (cwt) equivalent, these assessments are published on a PMT basis. Prices reported in the Europe page of the Weekly Report (both LRI price assessments and prices published by other entities) are published in Euros.

All members of the LRI market reporting team are trained in the application of, and adherence to, the LRI’s methodological guidelines and are regularly assessed by management to ensure consistency. Rationales will be assessed and approved prior to each publication to ensure the assessment follows the Methodology and that any calculations and judgement used in the assessment are well supported. Each rationale will include the identification of each assessor and reviewer. If a reviewer and a market reporter do not agree on any aspect of an assessment, the matter is escalated to a senior manager for resolution before the assessment is published.

Crop Transitions

LRI price assessments will always reflect the current crop, unless specified. Because the timing of harvests can vary from one year to the next, the transition from one crop to the next will start as soon as the new crop is assessed as meeting the LRI’s assessment principles. The transition from one crop to the next crop may have a significant impact on price assessments, so the LRI will often use a phase-in period during which the new crop is given an increasing weighting in the assessment.

For example, on Vietnam Long Grain White Rice 5% broken, Winter/Spring crop normally becomes available towards the end of February or early March. As soon as the LRI determines that the new crop price assessment is robust enough and meets the LRI’s assessment principals, the transition window will start and run for a period of 10 working days.

On the first day of the transition window, the LRI’s weighted assessment will reflect 1 day of new crop and 9 days of old crop (1:9), with new crop gaining increasing weighting in the assessment as each day passes. On day 10, the last day of the transition window, only new crop will be reflected in the price assessment (10:0). The same weighting approach will be applied to all transitions between crops. The LRI will perform crop transitions for main season crops in all origins and reserves the right to conduct crop transitions for secondary and/or tertiary crops, if deemed necessary. See below for an example.

LRI Methodology Document

Use of Judgement

LRI price assessments are produced using expert judgement and each assessment must be approved by an internal review before publication. All members of the LRI market reporting team are trained to utilise judgement when normalising transactional data and making price assessments. This may include, but is not limited to, normalising transactional data, beginning a crop transition, discounting anomalous data and ascertaining repeatability.

Especially during periods of low liquidity, or when there is a low level of available transactional data, LRI reporters will use judgement when making price assessments based on the market dynamics of the period. Through this, reporters will normalise and incorporate transactional data, such as an offer with a shipment period outside of a Methodology’s specified shipment period, into assessments. The LRI does not observe a minimal transactional data level for assessments because the liquidity of each market varies over time. The LRI is committed to providing assessments, even during periods of minimal liquidity.

Methodological Changes

Advanced notice of any proposed changes to LRI Methodology documents will be given to allow for feedback. Market participants will typically be given a minimum of 10 business days to initially respond to any proposed changes. After this window, the LRI will either enact the proposed changes after 5 business days or submit any additional changes back to the market for a further 5 business days for feedback. Please note that if the assessment is the basis of an exchange cleared financial instrument, any proposed changes will only be enacted after 30 business days’ notice.

The LRI will provide at least 30 working days’ notice of its intention to discontinue an assessment.

This period of time may be shortened if an unforeseen event causes a severe disruption in a particular market, such as an export ban. Please note that if the assessment is the basis of an exchange cleared financial instrument, this period will be extended to 6 months. A history of LRI methodological amendments is available upon request.

Security and Confidentiality

All data submitted to the LRI is stored on a secure network. Any transactional data submitted is considered proprietary information unless all relevant parties agree for names to be published. The LRI will retain any transactional data submitted and records of how price assessments were reached for a minimum of five years.

Global Compliance Policy

The LRI is committed to complying with all relevant laws and regulations wherever it conducts business or operates from. If LRI employees have any concerns that the LRI or any of its employees are not complying with relevant laws or regulations, they are encouraged to raise these concerns with the LRI’s Internal Audit and Compliance Officer or Managing Director.