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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.

As our marketing efforts gradually shift from focusing on individuals to institutions, we have been asked recently, more than once, to provide a theoretical framework for our investment philosophy and trading approach. Although our trading results continue to validate our strategy, we were more than happy to take on this challenge, go back to review the genesis of our ideas from over a decade ago and review why our methodology still stands to reason.

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 […]

In the first three weeks of May the S&P’s trading range was extremely compressed at roughly 1% with the previous 13 weeks having been limited to a 5% range, representing a measure of suppressed volatility that has not been seen in 8 years. In addition, numerous volatility measures also moved to the lowest levels in years, as is the case with VIX, which fell below 11 last month, the lowest since February 2007. Entering the month of June the S&P broke above this narrow range and advanced in the first three weeks despite the turmoil in Iraq. The S&P has rallied in the last two months without a single daily gain or loss +/- 1%, a rarity as well, with a prior occurrence in 1995. Furthermore, the S&P finished in the top 25% of the daily trading range (the S&P point change from the previous day/ the S&P daily range) in the first 20 trading days of the month, which is an unusual occurrence, having been seen less than a dozen times in the past 55 years. This trend continued into month end, driving the 40 day average of the formula into the top 31% of the daily range. This has occurred just one other time going back 55 years, having last manifested in the middle of May, 1995. The present backdrop is different than in May 1995 as the S&P then traded sideways the previous year and experienced a 10% correction induced by the Federal Reserve raising rates.

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.

Most CTAs are good at one thing trading. In order for them to efficiently run a business and get themselves off the ground all other aspects of their business are important cogs to the wheel. We have written before about vertical badge_proofthe items (other than trading) a CTA must be able to excel at for long term success. Marketing is one of these keys every CTA must do to get investors interested in their program. Simply listing on databases and talking to a few industry people just is not enough to get real growth to occur. Of course having good performance and decent assets to start does not hurt things, building a brand and marketing it to asset allocators is essential. Other databases have long provided CTAs with marketing collateral. IASG offers free use of its downloadable PDF forms for CTAs to use for prospective investors. Accessing these directly from their manager pages.

Placing undue focus on short term performance is a very slippery slope – it can be hazardous to one’s trading health. A seemingly ‘anomalous’ bad (or good) month may cause a manager to try to avoid (or replicate) his actions in that particular month going forward, when in reality, this ‘anomaly’ may have been nothing more than typical short term randomness. Yet by changing his actions the manager may lose some of his inherent ‘market edge’. It is not only dangerous to managers and the psychology they take into trading, but it is also dangerous to investors.

Luckily (or should we say skillfully), there is a scientific way to approach the problem. We can consider a game of chance with some known degree of ‘inherent skill’. For instance imagine a trader who has a 50% chance of winning each trade he takes. Suppose the trader makes twice as much on his winning trades than he loses on his losing trades. This is equivalent to being paid 2 to 1 on a fair coin flip. The long run expected outcome of each trade is $0.501. This $0.50 expectancy is the ‘inherent skill’ of the trader. But an outside observer does not have this knowledge. The outside observer only has the trader’s track record and must use it to somehow decipher the trader’s abilities. So how is this best accomplished?

Last night was the 3rd annual Managed Futures Pinnacle Awards hosted by CME Group and Barclay Hedge.  The event was supported by many of the industry brokerage firms and service providers that help comprise the Managed Futures space.  The event was exceptional in our opinion as we were able to rub shoulders with industry peers […]

After three consecutive quarters of much-greater-than-expected demand for U.S. corn and soybeans, confounding every analyst’s projections and strengthening current-year prices sharply, a turn to excellent planting and growing weather in Northern Hemisphere abruptly collapsed forward prices for corn, wheat, and to a lesser extent soybeans. We confess bewilderment as to why, with world demand this year so vastly larger than expected, forward price should not be well-supported by demand continuing on this surprisingly steep trajectory.

One of the biggest surprises this year has been the sharp decline in long term interest rates despite the Federal Reserve’s monthly removal of $10 billion in bond purchases to gradually reduce quantitative easing. Numerous market commentators have put forth explanations for the rate decline, touching on short covering, limited supply, economic woes, weather etc. A factor which has only been partly discussed is the correlation between European rates and US rates, especially the link between the German Bund and the US 10- year Treasury. These two have been loosely tethered to one another for more than 25 years. In the last sovereign debt crisis during the summer of 2012 Italian and Spanish long term rates stood at 7%, and have since dramatically declined, ending last year yielding 4.1%.

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.