Multi-year outlook on a busket of agr futs?

Discussion in 'Commodity Futures' started by TraderD, Nov 11, 2008.

  1. TraderD


    I was exploring asset class for next bubble. Read Jim Rogers outlook on agr. Then looked at the charts.

    While some crops had recent run ups (and now dropped), all of the crops are relatively unchanged in value for the last 20-30 years. Some have tripled from their recent lows (and then dropped). Still, this is not much if one takes a longer term view.

    Following is the case for a multi-year bull:
    1) the asset class is beat up, totally ignored, not sexy in the view of public, totally under mainstream radar
    2) way below the highs in 1970s (inflation adjusted)
    3) can be good inflation hedge
    4) may have fundamental supply/demand shift due to var reasons (many to list)

    So how good is this case?

    On #4 I know the least. How is biz for the farmers?

    Any bits of wisdom would be appreciated!
  2. I only trade short term, so I'm not "qualified" to answer 1-3, but as far as number 4 goes, I am qualified, as for the past few years I have invested in farmland, renting land and getting it custom farmed in addition to trading. After the last of the milo is out next week, my farming investment will be done with. Looking out to next year, things don't look pretty unless you have a bunch of grain/cotton sold for next year at this spring's prices. Here in my area, elevators and gins were not contracting '09 and '10 crops this spring, and I didn't hedge either, simply b/c margin costs were so extreme at the time. Looking into '09, fertilizer, chemical, seed costs all up at least 30%, diesel is lower, but with crop prices down 50% from their highs, its going to be tough. In my opinion, guys can live off of their profits for a few years, but within 2-3 years something will have to change, either a massive drop in input costs, or a rapid rise in crop prices.

    Also, look at basis levels in the country, crop prices down 50%...basis still lower by least in my area. Example...back in Feb I contracted '08 corn at 25cents over board, corn now much lower than Feb levels, basis is par the board...same with wheat, got 60cents under KC in the prices down 50%, yet basis 90under the KC board...

    Hope this helps....
  3. traderTX, so you're saying you're not farming the land anymore after this year? Isn't that long-term bullish?

    Some of these commodities at these prices are tempting me for long-term.
  4. Correct...the '08 crop was my last. No, I don't see this as long term bullish. I do think that commodities will rebound, but the reason I am done farming is because of the cost of inputs vs. price of grain....looking very similar to what happened late 70's and mid 80's. My parents and grandparents all farmed, and I have heard stories of them just leaving the land fallow in the mid 80's...same situation, they sat back on their profits from the previous year or two and waited it out...only took 2 years, but I don't like sitting and waiting that long. :D

    As far as commodities, yes...I think they'll correct, but not until the equity market straightens up, the markets simply too tied to it right now. Only bounces coming from end-user buying, such as what was seen in KC and MGEX wheat today. Only taking small positions right now, but I am waiting...should be some sweet long opportunities coming by year end.
  5. TraderD


    tradeTX, thanks fro sharing your experience.

    Another pro-bull argument.

    The agr basket, as a whole has not moved much from the 2000... Flat... At the same time energy costs, metals have gone up, dollar has gone down. Everywhere you look products cost more, yet agr raw materials don't. Why?

    How can this be possible? Options:
    1) the costs have not trickled down to that sector yet
    2) there was a supply build up, which puts pressure on prices
    3) not much profit in that sector, people are working /selling for less

    But is this sustainable?
  6. TraderD


    In previous post, I forgot one more possible cause for low prices:
    4) technological advancements in agr allowing for more efficient production...but I doubt it is the valid cause
  7. rros


    Be careful. Your point #4 from your last post needs some reconsideration. For example, Monsanto is already experimenting with special type of seeds for planting soybean in Africa obtaining much cheaper crops.

    As for your #1 point from your first post, nothing but the opposite. Many countries in latin america have recently experienced a major unprecedented boom due to ags. This has probably been the most talked about and sought after asset class of recent years with American teams landing in Argentina to study how down there they operate efficiently pools. It's possibly over, of course. Like traderTX mentioned, similar case than in the 70's when farmers where left with high priced operations and very cheap output. Many went out of business and many more will do so now. In South America they expect a bust on 09 for many of the pools. Could prices of grains rise again? It is possible, given the present credit restraints farmers also face. This may lead to less supply in the near future.

    Agricultural products do not, in my view, have the same capacity issues other industries have like the oil industry which requires many years until new production is in place. In case of crops, the supply imbalance can be corrected in as little as 1 year so you have to have a strong case for robust, sustained demand to support your future higher prices thesis.