Milk – That’s One Illiquid Liquid

We just so happened to stumble upon the table below courtesy of the Food and Agriculture Organization of the United Nations showing a nice breakdown of the dollar value of the top 20  agriculture “crops” produced around the world in 2012 (the last year of data). Who knew milk is the most valuable “crop” produced in the world, or that the Agriculture bellwethers in the futures space – Wheat and Soybeans – are each less than half the value of the meats (cattle, pig, and chicken).  Or that tomatoes outsell potatoes.

Production (MT)
1Milk, whole fresh cow $187.28 625,753,801
2Rice, paddy $185.58 719,738,273
3Meat indigenous, cattle $169.48 62,737,255
4Meat indigenous, pig $166.80 108,506,790
5Meat indigenous, chicken $132.09 92,730,419
6Wheat $79.29 670,875,110
7Soybeans $60.69 241,841,416
8Tomatoes $59.11 161,793,834
9Sugar cane $57.86 1,832,541,194
10Eggs, hen, in shell $54.99 66,372,549
11Maize $53.60 872,066,770
12Potatoes $48.77 364,808,768
13Vegetables, fresh nes $46.14 269,852,343
14Grapes $38.34 67,067,129
15Milk, whole fresh buffalo $38.30 97,417,135
16Cotton lint $37.10 25,955,096
17Apples $31.88 76,378,738
18Bananas $28.21 101,992,743
19Cassava $25.69 262,585,741
20Mangoes, mangosteens, guavas $25.25 42,139,837

But we kept coming back to Milk being worth the most “moo-la”, that was utterly interesting (ok, we’re done with the cow puns), and we went searching for some more data, finding an update on Milk production from the USDA:

Milk production in the 23 major States during March totaled 16.7 billion pounds, up 1.1 percent from March 2013. Production per cow in the 23 major States averaged 1,959 pounds for March. The number of milk cows on farms in the 23 major States for March was 8.51 million head, 1,000 head more than February 2014. The average number of milk cows in the United States during the quarter was 9.22 million head.

Milk Production Q1 2014Chart Courtesy: USDA

A single cow produces almost 2,000 pounds of milk by itself… Good to know, but hard to believe until we found out robots were involved via the New York Times.

“Something strange is happening at farms in upstate New York. The cows are milking themselves.

Desperate for reliable labor and buoyed by soaring prices, dairy operations across the state are charging into a brave new world of udder care: robotic milkers, which feed and milk cow after cow without the help of a single farmhand.

Robots allow the cows to set their own hours, lining up for automated milking five or six times a day — turning the predawn and late-afternoon sessions around which dairy farmers long built their lives into a thing of the past.

With transponders around their necks, the cows get individualized service. Lasers scan and map their underbellies, and a computer charts each animal’s “milking speed,” a critical factor in a 24-hour-a-day operation.

The robots also monitor the amount and quality of milk produced, the frequency of visits to the machine, how much each cow has eaten, and even the number of steps each cow has taken per day, which can indicate when she is in heat.”


The future is here!

So the milk futures market given milk-bots and $180 Billion in global production each year must be huge, right?  Not even close… as it turns out; the Class III Milk Futures had a Volume of about 2900 across futures and options yesterday, and an Open Interest of about 107,000 contracts. Compare that with Corn at 500,000 contracts yesterday and 2.7 million in open interest, and you can see we’re talking about an illiquid liquid.

So why isn’t there more Milk hedging and the speculators to take the other side?

Well, there is at least one professional speculator in the Milk space, Dairy focused CTA Schindler Capital Management, which just so happens to be up 28% on the year {past performance is not necessarily indicative of future results}. The problem is the CTA isn’t open for new customers because of capacity constraints, based on the fact that the market is just too illiquid.

And why isn’t there more hedging of that $180 Billion in exposure? Well – for one, a big component of the milk price is the price of the feed they give the cows, so a farmer could hedge the feed price instead of the milk price, using Corn or Soybean futures. Further, it doesn’t lend itself to a perfect commodities futures contract. A good futures commodity contract is perfectly transferrable – (a bushel of Corn is a bushel of Corn), cheaply transportable (a train car full of Corn), not easily perishable (Corn can sit in a silo for quite some time), and with a delivery hub close to production.  Milk isn’t cheaply transported and is highly perishable, requiring refrigerated trucks and so forth.  It’s also in nearly every corner of the world – making the delivery of a futures contract a dicey thing. What if it spoils en route?  But the bigger issue is it is produced in almost every corner of the world and that production is highly fragmented (got a cow, you’re in the milk business), leading to less big corporate entities who need to hedge millions or tens of millions of dollars of productions.  There’s also this little PR problem to overcome: “Dairy Farmers of America agrees $46m CME price fixing settlement

So don’t hold your breath waiting for the Milk futures market to explode – we’ll probably see Chicken futures before then.


Top 10 Managed Futures Performers of March

While one month’s performance is no way to judge an investment that has 3 to 5 year cycles, a glance at who’s doing well in the different environments month to month can be a useful data point at times. Here’s the top managed futures performers (by return only) for the month gone by:

Note: These programs are not necessarily recommended by Attain. For a list with much more thought behind it – check our semi-annual rankings.

 (Disclaimer: past performance is not necessarily indicative of future results. Programs listed consist of those with at least a 3 year track record tracked by Attain Capital Management for investment by clients via managed accounts and do not represent all available programs in the managed futures universe.  The Max DD represents the worst drawdown of all time for the listed programs). 

Top 10 CTA's of March
March ROR
Max DD
Min. Invst.
White Indian Trading Company -- STAIRS 12.14%-29.02%250,000
Schindler Capital -- Dairy Advantage10.86%-41.48%100,000
Purple Valley Capital -- Diversified Trend 16.90%-49.34%1,000,000
Harmonic Capital -- Macro (QEP)6.62%-21.51%10,000,000
Crescent Bay Capital -- Balanced Volatility6.24%-39.34%25,000
Dorset Futures Corp. -- E-Mini5.93%-33.65%100,000
LJM Partners -- Aggressive (QEP)5.62%-63.83%500,000
Northstar Commodity Invst. -- TBE Capital (QEP)5.47%-44.27%50,000
Melissinos Trading -- Eupatrid Commodity (QEP)5.31%-25.21%250,000
HB Capital Management -- Diversified4.89%-21.22%100,000

Weekend Reads

Feel Economy











High-frequency trading firm Virtu postpones IPO – (CNBC)

The Flash Boys review nobody wants to read – (Alpine Advisor)

Want Meb Faber’s new book for free? – (Amazon)

Greece Debt Woes are Easing – (The Economist)

If the subject matter wasn’t so… unsettling we wouldn’t stop looking at these charts – How Americans Die – (Bloomberg)

The sticker shock of Cocoa – (Bloomberg)

John Barleycorn bar in Lincoln Park shutting down after 50 years – (Crains Chicago)

12 killed, 3 missing in Mt. Everest avalanche – (LA Times)


Managed Futures Linkfest

  • Quarterly Hedge Fund Update Q1 2014, including CTAs — (Preqin)
  • Are Managed Futures ETF’s the best Commodity Play  – (Nasdaq) Our Answer – No!
  • The Case For Managed Futures In A Bull Market – (Seeking Alpha)
  • Manning & Napier acquiring managed futures specialist 2100 Xenon Group – (Pensions & Investments)
  • Human Floor Traders Step Up When CME’s Electronic Trading Fails – (ValueWalk)

Futures Trading on Tax Day

Today is tax day… and if you haven’t filled your federal and state taxes yet, do so now, or have the IRS knocking at your door. April is the time of year you’re forced to review your stock market gains and losses, compiling statements to find your cost basis and take a look at the taxes you owe. But for those of you who traded futures markets, this is one hurdle you don’t have to jump over.

Futures trading actually falls under a different part of the tax code than stock trading, with exchange traded futures and futures options trades being considered ‘Section 1256 Contracts’ come tax time. These 1256 Contracts have some distinct tax treatment, including:

Futures Tax Advantages

Unlike stocks, futures based investments are based on their marked to market value at the end of the year, so any open trade profits or losses in the account are treated as realized profits or losses as of the last day of the year. This is generally good news for investors, as futures gains or losses are treated as 60% long term capital gains and 40% short term capital gains, NO MATTER the holding period. For example, an investor who holds a futures position for just a few minutes, or hours, can book 60% of the profits on that trade as long term gains – even though the trade was anything but long term.

In addition, futures based investments do not require the accounting of individual trades. This is a godsend for any of you who have spent hours searching through old brokerage statements from 4 years prior trying to find the cost basis for a certain stock. There is also no trade by trade accounting in futures, no wash sale rules, and losses can be carried back three years on futures based investments.

Happy Tax Day everyone!

P.S. — Futures gains and losses should be reported on Form 6781 ( for US citizens, which comes over onto Schedule D of Form 1040 on lines 4 and 11. Schedule D:

Commodity ETF Breakdown

Here’s our monthly look at the various commodity ETFs and how they track a simple strategy of buying December futures and rolling them annually. Plus, a comparison to Ag Traders and an overall commodity index.  C’mon futures…

Commodity ETF Over/Under Performance 2014

Crude Oil$CL_F
Brent Oil$NBZ_F
Natural Gas$NG_F
Live Cattle$LE_F
Lean Hogs$LH_F
Commodity Index $DBC1.87%
Long/Short Ag Trader CTAs-0.90%

(Disclaimer: past performance is not necessarily indicative of future results).
(Disclaimer: Sugar uses the October contract, Soybeans the November contract.)
Long/Short Ag Trader CTA = Barclayhedge Ag Traders Index




YTD Asset Class Scoreboard

No matter which asset class you track on a regular basis, March was a month of little activity around the board, with none of the asset classes we track posting a return above 1% or below -1% {Past performance is not necessarily indicative of future results}. At of the end of March, Managed Futures was the only asset class in the red… which reminds us all why “Value Investing” is so hard.

Asset Class Scoreboard(Disclaimer: Past performance is not necessarily indicative of future results)

Asset Class Scorboard Chart(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from
Sources: Managed Futures = Newedge CTA Index, Cash = 13 week T-Bill rate
Bonds = Vanguard Total Bond Market ETF (BND),
Hedge Funds= IQ Hedge Multi-Strategy Tracker ETF (QAI)
Commodities = iShares GSCI ETF (GSG); Real Estate = iShares DJ Real Estate ETF (IYR);
World Stocks = iShares MSCI ACWI ex US Index Fund ETF (ACWX);
US Stocks = SPDR S&P 500 ETF (SPY)