Are Grain Markets Sparking Hedge Fund Interest?

August 21, 2017 in Commodities

Happy Hump Day! What a week it has been thus far for the grain markets. Consistent weather concerns that the Corn Belt is facing higher temperatures drove the grain markets higher. Today we saw another spike as counties from South Dakota through Nebraska and as far east as Indiana are under heat watch at the National Weather Service after the Corn Belt reached triple-digit temperatures.

This week the media reported on hedge funds taking net long positions in the grains after the CFTC reported the largest positions taken since June 2016. The data shows an unwinding of a short position and resulting in a decent net long position in corn. The media attributed this shift in interest to money managers seeing grains as the cheaper alternative to an overvalued and expensive equity market.

SMLXL reported accelerated hedge fund buying grains could lead to a rapid reversal on positive crop production news in the future. The notions that the market is vulnerable to a sell off because fund managers are long is crazy. Positions have shifted. We are late in terms of a typical weather scare as this happens in the beginning of June.

Back in 1979 Business Week ran a famous cover story: The Death of Equities. We know how that turned out. Yesterday Bloomberg ran the store that Goldman Sachs is reviewing their commodities business and biggest banks commodities incomes have halved. (See yesterday’s post).

Now we start to see an epic shift in commodity prices. The market quickly unwound the reflation trade after it became clear that the US president is going nowhere. We now face a worsening drought in the Northern Plains and has gotten the attention of money managers.

Please see the following articles we read this week. Hedge Funds Buy Grains at Record Pace, as Weather Woes Threaten Crops

New York Times: A Possible Alternative to Stocks and Bonds: Commodities?

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Marex Solutions Comes to Market

July 18, 2017 in Commodities
To follow up on our Commodities Are Dead piece… As the banks have left or are leaving Marex Solutions is coming to market. We know them well and think very highly of their initiative.
Please see the following story in Bloomberg: