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.
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.
Simultaneous, intense logistical snarls in both ocean-going shipments and North American rail transportation made for divergence between cash grain values and underlying futures contracts during the month. Part of what we do is forecasting how futures will act to realign regional imbalances, but this proved largely impossible as “uneconomic” dislocations abounded as never before: Cancellation […]