Tue, Mar 3, 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. Investing - Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched, Myriad hedge fund sold bulk of its Alibaba stake last year[more]

    Seth Klarman of Baupost outlines his investment process as major stock market indices are stretched From Valuewalk.com: As hedge fund manager Seth Klarman, leader of the $28 billion Baupost Group, reviews 2014 performance and considers investors gained near 7 percent on the year, he cons

  2. Investing - As rig count falls, hedge funds pile into long crude futures, Parus tactically shifts long/short exposure ratios, Mario Draghi outflanking Kuroda as bearish euro bets surge, Prime Capital’s 500.com bet derailed after 41% drop[more]

    As rig count falls, hedge funds pile into long crude futures From 247wallst.com: In the week ended February 27, the total number of rigs drilling for oil in the United States came in at 986, compared with 1,019 in the prior week and 1,430 a year ago. Including 281 other rigs mostly drill

  3. Opalesque Exclusive: dbSelect’s top ten FX strategies average almost 10% in January[more]

    Benedicte Gravrand, Opalesque Geneva: In one of Deutsche Asset & Wealth Management (AWM)’s hedge fund platforms, called dbSelect, a number of FX Strategies did very well in January. dbSelect is a managed investment platform for unf

  4. Opalesque Exclusive: SEC’s Mark J. Flannery warns hedge funds against valuation misconduct[more]

    Komfie Manalo, Opalesque Asia: Securities and Exchange Commission chief economist and director of Division of Economic and Risk Analysis (DERA) Mark J. Flannery has warned of the risks posed by market misconduct, particularly in the true valuation of assets by hedge fund managers. In his

  5. Dymon Asia's $3bn macro hedge fund lost 10.45% in January[more]

    From Reuters.com: Dymon Asia's $3.1 billion macro hedge fund lost 10.45 percent in January, performance data seen by Reuters showed, a month where many peers lost heavily after a surprise rise in the Swiss franc. Singapore-based Dymon, set up by Danny Yong, a former founding partner and chie