At the turn of the year the “consensus” was that corn was going lower, Bond prices were going lower (yields Higher) and the meats were going irregularly higher. Five + months into 2014, the bonds have rallied over 10 points and the funds have gone from being short 230,000 contracts of corn to being long 340,000+ contracts as of the beginning of May It took them over a dollar in price rally to get there but here we are! Now they are long, I think at an interim or possible top of the price action? Subsequent action since the May 9th report only reinforces my perception of that. What lies ahead is a chasm of time and future price discovery.
Year to date this year has been a roller coaster for Rosetta Capital Management. January saw cattle skyrocket while we were bear spread and long hogs short cattle. Once Feb hogs expired (our long leg) April hogs exploded for a $33.00 rally! Unprecedented, but it happened! When the smoke cleared, we as traders and you our clients can only say “Wow, let us not do that again!”
Since then, our trading has turned profitable and we are on our way back. Our bear spreads in cattle are working. We have some short corn trades that are working and I have an itchy trigger finger looking to sell more corn, beans and hogs on a bear spread basis. Our meteorologists seem in agreeance that at least the first half of the growing season looks good for the Midwest. The Dakota’s and parts of Minnesota, Wisconsin, Michigan and Ohio are in wet weather delayed planting mode. How much impact this delay will have is in that chasm I mentioned earlier. My feeling is that lower prices lie ahead for most markets with the exception of cattle. We are in a period where cattle slaughter will run above a year ago levels when June cattle traded $119! The hole behind this excess will keep prices above last year prices. I feel the Oct-Feb 15 time frame can see cattle make new all time highs again unless there is a financial calamity somewhere in the last half of the year.
Being involved in production agriculture as well as an Ag trader I would like to update you on the status of US agriculture per the recently released 2012 Ag census which is updated every five years. I find the numbers enlightening; there are 3.2 million farmers operating 2.1 million farms (which are defined as any place where $1,000.00 worth of Ag products or more are produced or sold). Since 2007, the number of farms declined by 95,489 and the number of farmers declined by 101,460. There are 914.50 million acres of farmland in the U.S., versus 922.09 in 2007 and 986.78 in 1982. This decline raised the average farm size to 434 acres, a 16 acre increase since 2007. Texas has the most farms with 248,809 which is a higher number by 1,372 from 2007!
In closing, I have a good feel for the rest of 2014 and beyond. As of now I want to sell corn, watch beans and look to sell November when near term old crop tightness is past or satiated. Hogs are experiencing PED, Porcine Epidemic Diarrhea, slaughter shortfalls but the April rally left a lot of product stored at very high prices (not conducive to rallies). I think our bear cattle spreads can make us good money still followed by outright cattle longs. In my opinion this is a good time to add commodity exposure with equities at new highs and Rosetta coming out of a drawdown.