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Going Back into the Ags
OK, I can’t stand it anymore. After staying out of the agricultural sector for the past six months I’m going back in. I’m not betting the farm, mind you. I am just starting to nibble by picking up a few contracts in soybean meal, the commodity with the most distressed growing outlook.
While a spectacularly positive USDA January report predicting record bumper crops this year stopped me out of my last position, I knew my departure from the sector would only be temporary. Watching the charts for almost all ag products, like corn, wheat, and soybeans, make potential one year double bottoms (click here for my recent corn piece at http://www.madhedgefundtrader.com/june-16-2010.html ), I have been itching to pull the trigger for weeks.
I have been a huge long term bull on the ags, because the world is making people faster than it is growing enough food in the most classical Malthusian fashion. And the people we already have are both eating more food, and more calorie intensive foods, like beef and pork, such as the hundreds of millions in emerging markets with rapidly rising standards of living. Did I mention that the revaluation of the Chinese Yuan is hugely bullish for all agricultural commodities? The bullish case for food not only applies to the agricultural commodities, but to global farmland as well.
Even though I think they are utterly worthless, some weather forecasting models are predicting that we will have the hottest summer since 1980, which can only lead to higher prices.
Keep stops in place, as always, as it was the ag futures markets where the term “limit move” was coined. If you can’t wait to get into soybean meal, you can buy the September futures on the CBOT (SM.U10E) at $2.72/ton. Or you can wait for the launch of the new soybean ETF (SOYB).
Teucrium Trading LLC has at long last plugged a gaping hole in the ETF line up by announcing the launch of three new funds in the agricultural sector. Coming to market are ETF’s for sugar (CANE), wheat (WEAT), and soybeans (SOYB).
The move comes on the heels of its successful launch of a corn ETF (CORN) earlier this month, the lead agricultural contract in the futures market. Remember the spectacularly successful launches of the platinum (PPLT) and palladium (PALL) launches early this year click here for more depth at http://www.madhedgefundtrader.com/january_27__2010.html )? Teucrium plans to avoid the contangos that have bedeviled other commodity based ETF’s, like those for natural gas (UNG) (click here for my piece on its woes at http://www.madhedgefundtrader.com/march_5__2010.html ), and crude (USO), by spreading investment over both front and far month contracts.
The new family of ag ETF’s will be a game changer. They will enable retail investors to get involved for the first time without going through the headache of opening separate commodity futures trading accounts. These funds can be traded through any garden variety online brokerage account. Institutional investors will happily avoid dealing with a recalcitrant CFTC.
The timing of the launch, for once, couldn’t be better because virtually all contracts are trading at close to one year lows, thanks to forecasts of bumper crops this year. Thank you Teucrium!
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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How about we revisit the YEN. Nice bounce off 87.00
Yen had a bounce? Then, in these manipulated markets in which 'medium-term' is a week, we're too late...I made a little $100 or so off that recommendation about 6 weeks ago and I'm not pushing my luck yet.
...but they've been saying this about ag being a good bet for MONTHS, if not years. And it never panned out. I think the fact that these are - like gold - based on futures contracts (and suffer through contango) and not real changing-hands commodity sales renders them highly suspect. Maybe better just to wait till General Mills or somesuch hits bottom...
"I have been a huge long term bull on the ags, because the world is making people faster than it is growing enough food in the most classical Malthusian fashion."
Spoken like a true dumbass. Seriously dude?
Oh, but does anyone have some thoughts on how these investment vehicles will be manipulated. We all know how obvious shorting CRE has been for the past year.... has goldie weighed in recently.
exclude all logical things, exclude all the impossible things and whatever is left is your answer. Before you try to figure that one out, may I suggest you drink half a bottle of Chivas, take 3 Viagra pills, invite 2 flexible escorts and get cracking!
Oh and don't forget your notebook!
Let me know what you come up with! :)
Nearly 90 mm people are born each year. Yes many in poor countries. But many will try and move the developed countries. With a population of nearly 7 billion and a potential coat of toxic oil/corexit coating the inland GoM, food will become a valuable commodity and not taken for granted in the next decade.
There's some hostility on this here board.
D-E-F-L-A-T-I-O-N. The air will go out all the bags, except for the politicians.
"people we already have are both eating more food, and more calorie intensive foods, like beef and pork" - that's it? it's all so simple and straightforward? no neuances whatsoever?
"beef and pork" - well, dear MHFT, how about a simple fact that for example of over one billion of Hindus (the population that's growing much faster than population of China), that those Hindus that LIVES in India, unlike some of college-age "indians" who were either born or have live int he West for a long time, will NEVER touch any beef or pork? And as far as the fastest growing polulations - Pakistan, Indonesia - which happen to be the muslim countries, will NEVER touch pork?
I'd personally take your "beef and Pork" crap and shove it into the BP's oil well... perhaps it would reduce the flow of oil and would make your BP bullish calls a bit more plausible.
Maybe we need a new line of ETFs to take advantage of this trend?
I know: there can be one for rude and incomprehensible foreign doctors on US soil , and one for soulless and narrowly materialistic foreign engineering students in US universities. Both have a vast underlying commodity base, yet significant potential for diminishing contango.
I agree with the long term bullish outlook on agriculture. There are dramatically less hectares available for farming as more and more regions around the world industrialize, the population keeps growing, people in emerging economies are gaining purchasing power and eating more, and agricultural prices have been so depressed for so long. Nobody bothered to become a farmer or invest in expanding output substantially in agricultural for quite some time. Not to mention as a hedge against fiat currencies falling like dominoes, agriculture like all commodities will work nicely. Plus we don't have to hear the same crap people say about gold, "You can't eat it"
Ask a farmer if they can grow corn for $4 a bushel.
$2.50/ bushel, including insurance, interest and depreciation- of course these numbers are unique for each producer. I would suggest that those who can not grow corn for $4.00/ bushel should probably be doing something else.
you didn't include the fertilizer you would need to grow ethanol corn on the same land for 3 years in a row. Crop rotation, who needs that?
$100.00 budgeted for fertilizer - with c/c/b rotation-oh it's all in there-total cost $450.00 / acre.
Once food prices start going up, these ETF's will be outlawed.
MFT...your advice is extremely dangerous. If you insist on giving out investment advice in the Ag space, please do the your customers a favor and be at least passingly familiar with the contract specs.
Soybean meal is traded in dollars per metric ton (making the price $268.90/ mt as of yest. settlement). And the Sep futures are the doggiest month on the board. Since harvest is a short 2 months away (one month for early crop delta beans), processors are not inclined to pay up for coverage knowing that a fresh supply is about a month away.
BY the way, have you noticed how good the growing weather has been? No? Keep watching the weather.
P.S. anyone long the ETF will be eaten alive by the "contango" in Ags. Have fun paying the storage costs for the entire U.S. crop.
EDIT: MHFT, if you are going to correct your mistakes...at least do so completely. The price of soymeal is NOT 2.72 per ton as your correction now states...
Currently the price for Sep meal is $271.50 per METRIC TON
Now here's the best part of all; somewhere out there there's a human being that's actually going to want to do what this nitwit told him to do on an internet blog; boggles the mind, doesn't it ? And you know it's true.
Might I suggest you guys buy bull spreads, long near tearm contract and short contract with later expiration date in order to minimize margin and possible losses.
My personal favourite AG is POT.
DYY 6.20, targeting 16.25, +162%...
http://stockcharts.com/charts/gallery.html?s=dyy
You buy MFT, I'll sit back and watch your sorry ass get creamed. Knowing you , you probably think this is a "correction." Its a correction alright, all the way to Dow 3,000.
This moronic windbag actually has a web-site where he sells subscriptions to his "output". I will never, ever understand how such a thing as a newsletter industry can exist. Who subscribes to these things ?
If you are bullish the flat price, you want to be bear spread. This is because in a rising market the producers will sell in to the front end of the market as they begin to clear space in their bins to make room for the coming harvest...
Duly noted, I'm definately an amateur when it comes to commodities - you live and learn, thanks man!