Tue, Mar 19, 2024
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. KKR raises $6.4bn for the largest pan-Asia infrastructure fund[more]

    Laxman Pai, Opalesque Asia: The New York-based global investment firm KKR has raised a record $6.4bn for its second Asia-focused infrastructure fund, underlining investors' continued appetite for private markets. According to a media release from the alternative assets manager, the figure top

  2. Bucking the trend, top hedge fund makes plans for a second SPAC[more]

    From Institutional Investor: SPACs aren't dead. At least not to the folks at Cormorant Asset Management. The life sciences firm, whose hedge fund topped its peers in 2023, is confident it will match the success of its first blank-check company. Last week, the life sciences and biopharma speciali

  3. Benefit Street Partners closes fifth fund on $4.7 billion[more]

    Bailey McCann, Opalesque New York: Benefit Street Partners has closed its fifth flagship direct lending vehicle, BSP Debt Fund V, with $4.7 billion of investable capital across the strategy. Benefit Street invests primarily in privately originated, floating rate, senior secured loans. The fun

  4. 4 hedge fund themes that are working in 2024[more]

    From The Street: A poor earnings report from Tesla (TSLA) has not hurt the indexes on Thursday. The decline in Tesla stock, which is losing its position in the Magnificent Seven pantheon, is more than offset by strong earnings from IBM (IBM) and ServiceNow (NOW) . In addition, the much higher-t

  5. Opalesque Exclusive: A global macro fund eyes opportunities in bonds[more]

    Bailey McCann, Opalesque New York for New Managers: Munich-based ThirdYear Capital rebounded in 2023, following a tough year for global macro. The firm's flagship ART Global Macro strategy finished the year up 1