Sugar Spread

Discussion in 'Ag Futures' started by comintel, Nov 18, 2010.

  1. I was watching an interview on Bloomberg with Mihir Worah, who manages a big PIMCO commodity fund.

    http://www.bloomberg.com/video/64561610/ starting around 4:25:

    "When sugar was at its peak in Jan-Feb around 30 cents a pound, we sell the May front month which is where the demand is and we buy the back months."

    Does this necessarily make sense?

    Why does he mention last Feb. (which of course was a major peak) but not the recent peak?

    I have ben monitoring this spread and it seems to have widened if anything as Sugar crashed in the past week.
     
  2. GJB

    GJB

    He's talking about the strategy they employed at the beginning of 2010. In January or February Pimco were selling May10 against a back month such as July10 or October10. In this case the spread did drop.

    The 2011 calendars have been widening until recently, Mar11/May11 put in a high around 2.90 and currently trades 2.60.
     
  3. Right. What in the current macroeconomic picture would tell one not to sell the spread a few weeks ago when March got up to 33? I guess one could have but it seemed to continue to widen for a while even after Sugar crashed a few days ago.
     
  4. GJB

    GJB

    Comintel,

    I wouldn't trade sugar based on macroeconomics alone, right now the most important thing is the supply side in sugar.

    The main contributor to the 20% drop in sugar was india signalling exports after expectation of a better crop. It's also expected that they will stagger these exports which means they have less affect on the mar/may spread.

    IMHO
     
  5. It may have been a losing trade at January 2010.

    <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=3014298 \img>
     
  6. GJB

    GJB

    That's a chart of mar11/mar12 which actually shows that spread dropping into may 2010, the trade was on may10 contract which would have expired april 15th 2010. Therefore the trade had to be profitable
     
  7. What do you think of this related spread trade (but different):

    Sell March 2011 35 or 40 calls
    Buy July 2011 30 calls


    I had this trade on a few weeks ago (prior to the crash).

    Right now I am just long the July calls and waiting for a further price recovery before re-selling the March ones.

    (Some brokers label the months one month earlier for options).
     
  8. bone

    bone ET Sponsor

    Right now, March 11 - May 11 is where the volume / action is.