Commentary provided by Chad Burlet of Third Street AG Investments As always, the month of March and the first quarter ended with the USDA’s release of their March 1 stocks report and their spring planting intentions report. These reports often have the potential to dramatically disrupt conventional wisdom and today’s report did not disappoint. For the past […]
Most of our expectations are really just knee-jerk reactions to day-to-day details, but today’s headlines rarely reflect tomorrow’s reality meaningfully. How many tectonic changes in how many different areas of our lives have and continue to occur, only dimly perceived even by those attentive to broadcast, print, and internet? Indeed most “experts” seem equally oblivious, leaving mainly to historians the task of describing change.
Wheat made new lows led by Matif, and corn and beans worked towards low end of the ranges. There were no real weather scares in SAm and both corn and bean prod’n ideas are getting bigger. For the month, corn lost 19-20 cents and beans were down 27. Meal was down $11.00 and oil down 25 points. Chgo was the biggest loser – down 35 cents with KC down 27 and Mpls down 16. Matif wheat was down $14.75 euros/tonne – 44 cents. French wheat is $20-25/ton below SRW and thus continues to bring Chgo down.
August trading results improved markedly as one of the metrics with which we track ourselves, the ratio of winning trades to losers, rose dramatically. Summer crop development was uncharacteristically dull, with unchanging, uncannily positive growing conditions. Since we refrain from exposing investor capital to weather forecasts anyway, we trained our attention on the wheat crops already harvested and the old-crop soybean market still working out its supply tightness.
After persistent rain-delayed spring planting, a clearing window allowed its completion – and consistently excellent crop-development weather has prevailed since. On May 18 U.S. planting was decidedly behind average pace, verging on price bullishness, but only a week later it had leapt ahead. About 90% of the Corn Belt received normal to above-average spring rainfall, which together with moderate temperatures has supercharged growth progress. The result is no less than a sea change in prices which have been kept high in recent years by harvests lagging amid demand growth.
Markets did not do a whole lot for most of the month until the stocks and acreage report on the last trading day of the month/quarter. It was easy to get chopped around, and I did. I was having a hard time staying with any positions or ideas. New crop beans wouldn’t break and old […]
Early 20th century British economist John Keynes famously stated “the market can remain irrational longer than you can stay solvent.” Lately, the agricultural markets have been defying logic and testing the solvency of many. A variety of market forces have been driving the meat and grain markets. With some key USDA reports closing up the first half of the trading year, the markets are celebrating the upcoming holiday with some fireworks of their own.
All markets made new lows on favorable weather. Old crop beans rallied early in the week but cash turned weak and liquidation was seen ahead of the Goldman roll. Corn crop ratings were issued and were some of the best ever to start the growing season. Chicago continued into the abyss with demand lacking,harvest ahead, and generally favorable crops around the world. KC made new lows but bounced later in the week on poor harvest results/low crop ideas.
Slightly negative results for the month extend a run of near-flat returns as most of the main economic themes identified by the managers showed little reaction. The position in which we had substantially expanded our risk and volume was held as long as possible, until late on “last position day” prior to physical delivery, and still did not bear fruit. Our policy is to not hold overnight positions during the delivery period so as not to expose investors to large, albeit temporary, margin calls.Our “bullspread” strategy in corn – i.e., long nearby and short deferred – was based on projection that U.S. producers would tend to market supply slowly since they had already taken much income from selling soybeans and would wait rather than liquidate all 2013-14 production within a narrow timeframe. Our forecast of demand for U.S. corn was aggressive, as Argentine farmers held back supply for financial reasons and Brazil deemphasized exports to make sure it met soybean commitments.
Quite a whippy week. Beans and wheat broke hard earlier in the week. Wheat broke on wetter forecasts and beans broke on all the distressed China cargos and import talk. Funds liquidated flat price beans and exited spreads. There was major unwinding going on. As the week wore on, there were more and more reports of wheat being ripped up (both HRW and SRW) as well as escalating tensions between Ukraine and Russia which provided support. Both US and Brazilian bean basis firmed, we continue to see positive bean and meal sales weeks, and crush margins remain strong – all providing support to old crop beans.