At this point a reasonable question is…if this is general commodity-wide buying interest based on inflation, why is the effect so much more pronounced in soybeans than corn or wheat for example?\u00a0 I think the answer is index traders have learned their lesson on the damage the negative roll can have on performance.<\/p>\n
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Note the breakdown above, showing the spread between the spot and 1-year deferred futures contracts in several different ag markets.\u00a0 As you can see there is a significant negative<\/em> roll when moving longs from the spot corn\/wheat contracts to deferred contracts.\u00a0 The roll in the soybean futures is basically flat.\u00a0 You can also see in the YTD column that the carry in corn and wheat has actually worsened (for the index long) while in soybeans the carry has improved.\u00a0 So, if you\u2019re a fund manager charged with beating the ag sub-index of the BCOM (or maybe GSCI) why bother putting longs in corn or wheat if your rules don\u2019t require it?\u00a0 Instead, simply allocate your required long positions to the soy complex to cover your upside for benchmarking purposes and not worry about the negative roll effects in corn and\/or wheat.<\/p>\n I should state that I\u2019m somewhat over-simplifying this, as certain funds have different rules and requirements for their benchmarking…but the bottom line is that unless you have to have your indexed longs in corn or wheat you really shouldn\u2019t bother with them in this sort of carry environment.<\/p>\n The first two charts below somewhat illustrate and support this thought process.\u00a0 The first chart simply shows the YTD performance of these 3 key ag markets.\u00a0 At the time of writing soybeans were up roughly 17% YTD while corn was down roughly 3% and wheat was down roughly 13%.\u00a0 The second chart shows the YTD relative change in index trader net positions.\u00a0 Here you can see index traders have added roughly 24% to their net soybean positions while their wheat position is up slightly and their corn position is actually slightly lower.\u00a0 It should also be pointed out that there are also \u201cindex type\u201d of benchmarking funds that are counted in the MM category.<\/p>\n All of that being said\u2026.the third chart below is one that I have to admit I was surprised to see.\u00a0 YTD wheat futures aggregate open interest is up roughly 39% vs a 4% increase in corn and a 3% decrease<\/em> in soybeans.\u00a0 Clearly, given the thought process above I would have thought soybeans would certainly be higher than that.\u00a0 However, it is worth noting that this chart is only looking at futures OI.\u00a0 It might be a very different story if we look at OI in terms of futures and options (delta).\u00a0 Still, I have to admit that I am somewhat puzzled that futures OI has not moved in a greater manner on this recent buying surge in soybeans.<\/p>\n If…that is a big IF…this analysis is correct, it certainly does open the door for some big relative-value plays down the road if\/when some of this investment flow slows down and\/or fundamentals change.<\/p>\n DISCLAIMER<\/u><\/strong>:<\/strong> <\/p>\n","protected":false},"excerpt":{"rendered":" Grains – Yesterday posted another very impressive performance for the soy complex while corn and wheat traded somewhat listlessly until the late stages of yesterday\u2019s session.\u00a0 It of course begs the question, has anything changed recently that dramatically alters soybean price potential vs. corn\/wheat?\u00a0 Well, on one hand I would make the case that at […]<\/p>\n","protected":false},"author":4,"featured_media":1505,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[13],"tags":[],"yoast_head":"\n
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