Thu, Mar 26, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Uncorrelated Investing Market Commentary Agricultural Markets in Key Transition

Wednesday, October 23, 2013

CTA Third Street Ag Investments sees opportunity in the upcoming global shift

By Chad Burlet

Chad Burlet (R) migrated from Goldman Sachs and Bob Otter (L) came from the Chicago Board of Trade grain trading floor to form Third Street Ag Investments.

We find ourselves at an interesting juncture in world agriculture. After years of shortages and tight supplies, the market is transitioning to a more comfortable situation and we could well be looking at surpluses by the fall of 2014. The relatively high global grain prices of the past several years have performed their economic function. New land has been brought into production in South America and the FSU. Better seed genetics, better farm practices and better use of fertilizers and pesticides have increased yields everywhere. Investments in infrastructure have improved grain handling, transportation, and storage in many key countries.

To understand the events that created our recent shortages we need to look back several years. In 2009 we saw a sharp increase in the growth rate of global demand. Until that point the rate of growth had been relatively constant. There were two key changes that brought this about: the rapidly expanding Asian middle class was improving its diet, and dozens of countries started to use grains and oilseeds as renewable fuels.

Meanwhile, on the supply side, there was an unfortunate series of crop disasters in key growing areas. In rapid succession Russia, South America, and the U.S. all suffered major crop reductions. For the past five years the prices of wheat, soybeans and corn have been 30%, 54% and 68% higher, respectively, than they were for the previous five years.

So where do we believe the market will go from here? As stated above, we are transitioning into an era of surpluses. The U.S. has just completed a very difficult growing season. Torrential spring rains caused 10 million acres to go unplanted. Following this, key growing areas of the central Midwest had record low rainfall in July and August. Despite those major problems we are increasing the U.S. soybean carryout by 20% and adding more than 1.2 billion bushels to the U.S. corn carryout. The function of the market will soon move from pricing additional land into production to pricing land out of production.

We see excellent opportunities in this transition. The prices necessary to cause productive land to go fallow are painfully low, possibly lower than many would expect. As our world view is confirmed we will position ourselves for a move into a lower price paradigm. Also, the different grain and oilseed markets will not make this adjustment uniformly. We already see price dislocations between commodities that compete for the same land and compete for a similar spot in animal feed rations. Those dislocations will correct over time. Our ability to identify and capitalize on those dislocations is our core strength. Weather is the one factor that can change this script in a relatively short period of time, which is why the monitoring of weather and crop conditions is one of our highest priorities.

We believe the agricultural markets will be blessed with many major opportunities in the next several years. Our fundamental discretionary strategy is non-correlated to other asset management options. This is the ideal time for investors to consider an investment in our sector.

Chad Burlet & Bob Otter Background:

It is at key junctures such as this where Third Street Ag Investments will have a distinct advantage. The two Principals have an average of 35 years of experience. Chief Trading Officer Chad Burlet has split his career evenly between the commercial grain trade, working for Cargill and Goldman Sachs, and asset management for himself and others. COO and Chief Risk Officer Bob Otter has spent his career at the Chicago Board of trade working as a trader and broker, developing a strong data base on agricultural markets. Their extensive experience gives them the perspective needed to put these mega-trends in context.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Other Voices: Does the hedge fund industry benefit society?[more]

    This article was authored by Don Steinbrugge, Chairman of Agecroft Partners, a US-based global consulting and third party marketing firm for hedge funds. It is no secret that the hedge fund industry is viewed negatively by a la

  2. Private credit comes into focus for investors[more]

    Bailey McCann, Opalesque New York: As investors look for a way out of the low yield/no yield environment, private credit is becoming an increasingly attractive asset class, according to a white paper from Bayshore Capital Advisors. Private credit has grown steadily since the financial crisis as

  3. M&A - Hedge funds no longer attractive targets for banks, reinsurers, Blackstone buys stake in Christopher Pucillo’s Solus event-driven hedge fund[more]

    Hedge funds no longer attractive targets for banks, reinsurers From Institutionalinvestor.com: Swiss RE, the world’s second-largest reinsurer, is looking to sell its 15 percent stake in Jersey, Channel Islands–based hedge fund firm Brevan Howard Asset Management. Morgan Stanley reported

  4. Opalesque Radio: Threadneedle expects continuing equity volatility this year[more]

    Benedicte Gravrand, Opalesque Geneva: Investors should expect more volatility, which is signaling a "slow moving" top to the market, KKM Financial’s founder and CEO Jeff Kilburg told CNBC on Monday. And this volatility is going

  5. Hedge funds show strong performance of 2.52% so far in 2015[more]

    Komfie Manalo, Opalesque Asia: The hedge fund industry got off to a strong start in 2015 "completely unmindful" of the poor performance last year, according to data provider Preqin. According to Preqin, following a year which saw the average he

banner