Droughts, Crop Yields, and all that Ag Market Stuff…

It seems like just yesterday, the infamous drought of 2012 was upon us. It was a perfect storm (or lack thereof) of dry conditions causing the worst drought since the 1930’s. You couldn’t walk two blocks without sweating, most of the Midwest forgot what rain felt like, and farms survived a horrid planting season. Because of that, grain prices skyrocketed. Needless to say, 2013 has been the polar opposite (mid temps, more rain than you could ever want.) Check out the drastic differences in Wisconsin, Illinois, Indiana, Iowa, Missouri, and Arkansas courtesy the U.S. Drought Monitor.

Courtesy: U.S. Drought Monitor

As you can see, parts of the U.S. is still dealing with the aftermath, but the show must go on. Once again all attention is on weather this time round, as agriculture trading is front and center and planting season wraps up and analysts begin prognosticating on the potential output for new crop beans, corn, and wheat. It probably won’t be surprisingly to check out the 2013 record breaking numbers for rainfall.

Courtesy: M6 Capital Management

What’s it all mean for the coming harvest time?

We were lucky enough to sit down with M6 Capital Management before the MFA Forum 2013 in Chicago, welcoming Chris Meyers and Craig Holliday of  to our office for a roundtable discussion (actually – we have a square table) on the grain markets and their trading strategy. Imagine a good Mississippi accent talking rainfall amounts and crop yields, and you can picture the discussion. But they also shared their recent ‘outlook’ paper with us, and while the commentary is certainly interesting (especially if you’re market addicts like us), the bigger picture is that investors can see the “behind the scenes” type thinking and strategizing that makes a fundamental ag trader tick.  Send us an email if you want a copy of the whole report.

M6 points out that the markets have adjusted to these planting delays, as prices for new crop contacts have rallied (although they were down today.) M6 says even if farmers lose a few acres of planting, soybeans should be ok.

“Figure 2 is a chart of September 1 soybean supplies in the largest world producers (US and South America). This chart assumes that we get the US soybean crop planted and we have trend yields. Note that if this occurs, then we could have supplies 23 million metric tons (17%) larger than last year. Therefore, if weather allows the completion of US soybean planting, supplies will be plentiful, and we would expect the price of November soybeans to be significantly lower by harvest time.”

 

 

Courtesy: M6 Capital

 

17% higher supply than last year and a prediction of Nov. beans significantly lower by harvest time. What a difference a year makes.

So what’s the hub-bub about corn? M6 says that’s a different story.

“Supplies of US corn are very tight right now and are likely to stay tight well into early parts of harvest. We will likely have decent supplies of corn once harvest occurs, but getting from tight supplies in June to decent supplies at harvest (October) will likely be very tricky. Under this scenario, the nearby contracts stay firm, and the December corn contract trades lower as the crop develops. Figure 3 below shows the contrast from small stocks to large production.”

 

 Courtesy: M6 Capital

Mr. Meyers certainly knows his way around a crop report – and with eight years of trading as a CTA under his belt and $48 million in AUM, we believe he is poised to make the next jump in his trading career.  We have been following the trading at M6 for the past twelve months and recently added the program to our recommended list earlier this month.  For a more in depth look at the program read our Managed Futures Spotlight on M6 we published in February.

(If you would like a copy of the entire M6 newsletter, please email us and we would be happy it forward it to you. Otherwise, check out our free newsletters here.)

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The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.