Rain Makes Grains (Die?)

Forget what’s happing halfway around the world in Greece, we’ve got a storm brewing here in the heartland of America, in the grain markets. One quick look at the Finviz quote table, and we can see grains are as a green as the commodities they represent.

Grains Table(Disclaimer: Past performance is not necessarily indicative of future results)
Table Courtesy: FINVIZ

The major grains are up anywhere between +2% to a little under 5%. For those living in the Midwest this might not be a shocker, as June was one of the wettest months on record if not the wettest, putting a damper on our summer celebrations so far.  And putting a damper on ideal growing conditions, where you need just the right amount of rain. To greatly oversimplify things: too little rain, and the Corn dies of thirst. Too much, the Corn drowns.

Which brings us to the current ‘too much rain’ environment, where the only things more colorful then the table above are the maps of May precipitation versus the average – with a big swath of the country in the green to dark green color representing 100% to 500% more precipitation than normal.

Perception Percent AverageChart Courtesy: NOAA

For a slightly different look, here’s each state ranked individually on the dry to wet scale (which for some reason goes up to 121?), meaning this is the wettest May on record for Texas, Oklahoma, and Colorado.

Rain RankingsChart Courtesy: NOAA

While the NOAA hasn’t released June numbers yet;  the Illinois State Climatologist says June has been the wettest in the state’s history.

Illinois Rain RecordChart Courtesy: Chicago Tribune 

If you like to hear it from the words of the people who spent time in the fields, Rosetta Capital’s Jim Green spent a great deal of time on I-80, traveling through the heartland of the U.S., and experienced some not so great crop conditions.

“I saw so much drowned out beans, windblown corn and major roads closed due to flooding in the largest corn county in the US of A! The water damage is more prevalent than not. That tells me we will have a tough time reaching USDA estimates on planted acres and projected yields. A warning has been issued that things are far from perfect and the funds are short.”

It seems Mr. Green isn’t the only one noticing these conditions, with the grain complex up sharply since the middle of June, and many markets going Limit Up today, leading the CME to extend daily limit moves for the commonly traded grains.


This time last year, Ag traders were looking at riding the grain market trend down, down, down, with systematic traders joining in once the trend was established. And now it looks like the tables will be turned – with discretionary traders looking at crop conditions and the recent up move as proof prices have some upside, while systematic traders are likely getting stopped out of short trades as markets like Corn break above their 50, 100, and 200 day moving average in the past 6 trading days (June 23th), setting things up for potential long trades if their models confirm the rally as an up trend.

Corn Markets moving average(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Barchart

Of course, there’s those out there who get worried about rain causing gains, because of the old trader saying:  “Rain Makes Grain”, with the thinking going – rain can be bad for supply, but more often than not it’s a good thing, meaning more supply thanks to the rain, not less… which would make this a head fake higher. Only time will tell.

For more information on how these ag mangers trade these markets, check out our whitepaper, “Ag Traders.

Wall St. Sucks at Predicting Interest Rates, and so does Everyone Else

Raise your hand if you’ve been waiting, and waiting, and waiting for interest rates to finally rise.  No way rates could stay at zero forever we all said in 2010, and again in ’11, and ’12… and then finally in ’13 – a light at the end of the tunnel. Rates actually went up as bonds lost –4.54% ($BND).  Following that, 2014 was surely the year interest rates were going to start rising in earnest, fueled by more tapering and perhaps turning into the mother of all trend following trades.

Except… nobody remembered to tell the bond market what it was supposed to do – as rates fell in 2014 with bonds gaining ($BND +5.93%), proving us all wrong once again…


30 year bonds(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Finviz 

Which brings us to lovely 2015, the year of the Sheep, where bond yields have once again made a brief run higher, moving from a low of 1.68% on the US 10 Yr to a high of 2.28% {Past performance is not necessarily indicative of future results}.  Now, your elders may scoff at 60 basis points move, but for those of us who have lived at the zero bound for the past 5+ years,  60bp is nothing to shake your head at. And it wasn’t the kindest of moves to those who systematically trade such markets – with managed futures and global macro down in February and April as the months-long up trend (in prices, down trend in rates) reversed course.

Which all leads to the $1 million $1 Trillion question – is this the move higher in rates we’ve all been waiting for?  Or are we just sheep being led to the proverbial slaughter once again believing two months of rising rates means many more months of rising rates ahead.

We’re really bad at this question

[Read more…]

Futures vs ETFs 4 Months In

If you haven’t seen the old ‘dead cat bounce’ in Crude Oil recently, we’re looking at a 50% or so rebound from around $40 up to $60, making our “How to Play a Bounce in Oil (Hint: Not $USO)” post quite on point, both from a timing standpoint, and from the $USO pan – with December WTI now up 6.09% YTD while the $USO ETF is only up 0.74% {Disclaimer: Past performance is not necessarily indicative of future results}.  Whether this bounce keeps bouncing or not, here’s our monthly look at:

1. How the numerous commodity ETFs which have sprung onto the scene the past few years are tracking a simple strategy of just buying the December futures market of that commodity, under the theory that the ETF will have to roll their positions periodically throughout the year, and in doing so take on costs the simple strategy does not have.

2. How the passive investment strategy of being long commodities (either via futures or ETFs) compare to an active strategy going both long and short commodity markets via a professional commodity trading advisor (as tracked by the BarclayHedge Ag Trader Index).

(Performance as of 4/30/2015)

Commodity ETF Over/Under Performance 2015

Crude Oil$CL_F
Brent Oil$NBZ_F
Natural Gas$NG_F
Live Cattle$LE_F
Lean Hogs$LH_F
Average without Hogs-5.84%-5.12%-0.72%
Commodity Index $DBC-0.87%
Long/Short Ag Trader CTAs-0.02%

(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

Alternative Links: Bomb Bonds


Bond Market Meltdown Deconstructed: Five Charts That Explain Why – (Bloomberg)

Long Crude Oil and Short Bonds? – (All Star Charts)

Cliff Asness: Investing Amid Dearth Of Value In Equities & Bonds – (Value Walk)

(Not really bonds) Moody’s cuts Chicago’s credit rating to junk – (Crains Chicago)

Managed Futures:

Managed Futures/CTA Strategies Show Favourable Performance and Liquidity Terms for Investors – (Preqin)

CTAs: Equity Hedge, Crisis Alpha, Long Volatility – True or False? – (Top Traders Unplugged)

Attain Funds April Performance – (Attain Alternatives Blog)


Commodity markets wary of false alarm as El Niño blows back – (FT)

Every date this week is a palindrome – (Mashable)

Castleton joins oil trade titans with Morgan Stanley deal – (Reuters)

Asset Class Scoreboard Q1

The first quarter of 2015 is in the books and Managed Futures is leading the pack so far YTD of the 8 asset classes we track {Disclaimer: Past performance is not necessarily indicative of future results}. It will be interesting to see how the next three quarters play out.

Asset Class Scoreboard Table March 2015_1

Asset Class Scoreboard Chart March 2015_1

(Disclaimer: past performance is not necessarily indicative of future results.)
Source: All ETF performance data from Morningstar.com
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 (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)