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.
In the summer of 2013, grain prices were strong as weather issues greatly impacted soybean and corn production and took US stockpiles down to very tight levels. As a result, the grains, particularly the soybean complex, have been in ration mode and ultra-sensitive to any type of market news. One week market players were bidding prices higher on production concerns in South American and the following week were selling it off on news of a slowing Chinese economy. However, in May it became evident that we squeaked through the limited supplies and US farmers successfully planted a whopper crop. Yet, prices remained lofty through June even as the crop was maturing into one of the best on record. Why was the market not pricing this in? Who knows? But the June 30 Grain Stocks and Acreage Report gave traders a reality check as the USDA reported farmers planted almost 3 million acres more of soybeans than expected. That was enough to crater soybean and corn prices almost 5% in one trading session. With July 4 approaching, the corn is starting to tassel and grain trading gurus know that with the numbers we are seeing, prices most likely will head lower. What a difference a year makes.
In the meanwhile, the June 27 Hog and Pig report supported what was already a super bull market in the lean hog markets. In the past year, it is estimated almost 7 million piglets have been lost to the rampant PEDv virus. Since the beginning of 2014, hog prices have risen 33%. Things are just as bullish in the cattle markets. Live cattle and feeder cattle prices have surged close to 20% year to date. As we trade at all-time highs in the meat markets, only the naive and novice trader would attempt to pick a top in a runaway bull market. Currently, the trend is your friend and the long side or being flat these markets is the only place to be. However, as in any bubble, the best cure for high prices is high prices. The time will come eventually for these markets to revert to their mean and there will be money to be made on the short side of the trade.
There is still plenty of time to participate in these fickle agricultural markets. With such drastic fundamentals at play, there is no doubt that investing in the agricultural space is best left to experienced traders who have the knowledge to successfully navigate the minute by minute flow of information. Through a managed futures account at IASG, an investor has the capability of participating in these exciting and historical times in the grain and meat markets. A managed futures account offers transparency and liquidity and IASG’s proprietary portal Insight allows clients to follow the action and track the performance of their CTAs.