Article / 27 August 2015 at 13:00 GMT

Agricultural commodities trending lower

Chief Investment Officer / ACIES Asset Management
Switzerland
  • Farm commodities markets are generally bearish
  • The trends for most are solidly downwards
  • Oats and soybean oil markets illustrate the point
  • Clear trends offer shorting opportunities

Soybeans
  Doesn't look like a good investment, does it? Photo:iStock

By Andreas Clenow

This whole agricultural commodities sector is falling (See sector table below). It's been declining for a very long time and it just keeps falling. 

But it has been a money-maker for the trend-following community, by simply staying short a broad range of agricultural commodities.

It seems abundantly clear where this sector's markets are heading. None of the important markets is heading up. 

At best, they're just slowly heading down instead of falling rapidly. The table below provides an overview of the state of the sector. Not a pretty sight.

Agricultural sector trending overview
Agricultural

Source: FollowingTheTrend.com

The table above shows a sector in total disarray. If that's not a bear market, I don't know what is. While the financial markets are erratic, clear trends are found here, in the agricultural space.

Almost everything in this sector beckons to be shorted. There are two main factors at play, as usual in commodities. Spot prices are falling, but most of the markets are also in contango, which puts further long-term pressure on the futures markets. 

Take the oats market for example. The price chart below shows a full year and almost a 45 degree trend down. The term structure in the third chart explains much of the long-term profile of this market.

Oats dashboard
Oats

Source: FollowingTheTrend.com

Coffee is another case in point as that market is setting new lows. (Link here to read Andreas Clenow's Trade View on coffee published earlier today.)

A very different commodity that shows a similar pattern to that of oats is soybean oil. It was falling less steeply earlier in the year, but for the past few months it has been in freefall mode. This too is very much driven by its own term structure. The dashboard below shows how the soybean oil market looks at the moment.

Soybean oil dashboard
soybean oil

Source: FollowingTheTrend.com

These are not extreme examples chosen to exaggerate the situation. These are random examples in a long list of very bearish markets in agricultural commodities. 

Are you tired of unpredictable financial markets? Did you get burnt on the choppy moves in equities? Farm commodities may be able to offer your portfolio some much needed diversification. As long as you stay on the short side, that is.

– Edited by John Acher

Andreas F. Clenow is a hedge fund manager and chief investment officer at ACIES Asset Management in Zurich.
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