Ag trade ideas

Discussion in 'Commodity Futures' started by TraDaToR, Aug 24, 2014.

  1. TraDaToR



    The recent flow of threads in the ag forum makes me believe there is some interest in fundamentals/curve/interproduct analysis of ag markets. I would like to create a thread where we can discuss some specific opportunities...You think the March 2015 crush margin is too rich? Post it here. Soyoil Mar/May > Full Carry?milk prices doesn't reflect cattle market problems and you find it odd?please post. Any trade idea is welcome.
    Last edited by a moderator: May 6, 2015
    johnnyrock likes this.
  2. Here's a couple trades I am currently working. SMZ/BOZ looks like it could run some more, but the squeeze action in the Sep SM contract has me wondering when the selling will start in the Dec?


    Another trade is KWZ/SX. Pretty volatile as well, fundamentals should keep this one working, but for how long?
  3. TraDaToR


    What is the basis for the first trade( soymeal/oil )? There were some articles last week about soyoil bottoming( ratio with palm oil...).

    Your trade made me check the nov crush. The crush margin is almost at its highest level in 20 years( unfinished purple line on the right ):


    There should be a trade here too...:)
  4. @TraDaToR
    1 - Milk, feeder cattle and live cattle are trading higher and higher from 2009. The ratio is quite on low levels but I dont know exactly what is the fundamental link between feeder cattle and milk. Do you think farmers can switch between producing milk and feeder cattle ? Or at least buying less feeder cattle because its too expensive for milk producers ?

    2 - Where do you find the full carry of bean oil ? If I look backward, I find a lof of years with higher spread between may & march expiry

    3 - I am not at 100 % but in my memory my statistical study showed that the crush spread isn't "mean reverting" when we are close to the expiry (200 days). It seems that you graphic is showing that its mean reverting so I am confused. I need to check this fact again.


    What is behind the KW/S spread ? The link between between these products is not obvious for me. Not the same producer, not the same consumer.
  5. TraDaToR


    Rachmaninov, those were just examples of the kind of trade idea I would find interesting. Just to illustrate the principle of the thread. I really don't know the link between milk and cattle markets or bean oïl carrying charges...But perhaps some people do ...And I would love to hear from them. I guess you are right on the crush. Generally just about any spread gets less mean reverting towards the end as individual expiries get more volatile...
  6. Brighton


    Rachmaninov - Someone else may chime in with better information, but I'm not aware of a common spread trade in milk/feeder cattle. In the US the producers (dairy farmers v. ranchers) are going to be largely distinct so I don't think the switching you refer to happens. It's more herd expansion v. contraction based on market economics for their respective sectors.

    That's not to say there isn't *some* correlation but I'd guess that it's due to feed costs, but even there, Feeder Cattle (animals raised for beef, not milk) are largely grass-fed and then they go to be fattened up and eventually become the Live Cattle contract.

    You may find better, easier to trade relationships with the livestock feeding margins (some people call them feeding spreads or the cattle or hog crush). Corn v. Live Cattle or Corn + Meal v. Lean Hogs. Or make your own with Class III milk (the most liquid, no pun intended) vs. Corn + maybe meal.
    Last edited: Aug 25, 2014
  7. I like using seasonality as a filter for possible trades and SM/BO is good right now. I entered when the price action looked good. I'm not following palm oil, but do follow the bean market itself. We'll see if the selling from today continues....

    I did a lot of work a few years ago on trying to find good mean reversion trades on the crush spread and I just couldn't make it work. Nowadays I need to see some good volatility before I enter. For example, NG, ED spreads right now require too many lots.
  8. Brighton


  9. @Brighton
    Your argument on milk/cattle makes sense for even if we lack some informations.
    I already tried Corn v. Live Cattle & Corn + Meal v. Lean Hogs and the cattle crush and didnt find anything significant.

    @GiantHogweed SM/BO
    On seasonality, I am always cautious on this thing because there is few points for the seasonality. Only one a year ! Its difficult to get something robust. And soycomplex seasonality could be influenced by south america nowadays. Did you get good trades using seasonality ?

    #10     Aug 26, 2014