Free Commentary

By: Dan Hueber –

Often comedians and writers will use hyperbole or exaggeration to really try and emphasize a point.  “It has been raining so hard and for so long that I am beginning to see animals line up two by two.” Romeo was a bit more poetic when said of Juliet, “The brightness of her cheek would shame those stars, /As daylight doth a lamp; her eyes in heaven/ Would through the airy region stream so bright / That birds would sing and think it were not right.” (Gentlemen, give that one a try on your next anniversary.) I could not help but be reminded of this as I was reading the news this morning, but in this case, it pertains to the state of the commodity world.  The hyperbole could be along the lines of, “It has become so depressing in commodities that the bulls have removed their horns, grown a thick coat of fur and have begun growling instead of snorting as they have complete given up hope” or possibly, “After enduring torment exceeding even that which is administered beyond the gates of Hades, the majestic bull finally succumbed to the forces of the evil one.”  Of course, I have taken a rather long route to say that even some of the most faithful and ardent commodity bull advocates have decided to cross over to the dark side.  While not a household name, Gresham Investment Management was one of the pioneers of advocating a long-only portfolio of commodities to be added to an overall investment portfolio, and between its creation in 1992 saw assets grow to over $16 billion by the commodity peak.  Currently owned by investment giant TIAA, assets under management has dropped down around $7.4billion, which the majority of the decrease attributed to the declines in the commodity markets.  In response, the company has now announced the introduction of a new fund that can invest both long and short in the commodity world.  Recognize, they are not the first to begin offering such and are undoubtedly looking for ways to just remain viable as commodity hedge funds are completely shuttering on a regular basis, but this seems to smack of closing the barn door well after the horses have bolted.  Worse yet is the possibility that some of these companies as well as the investors that have placed money with them have lost sight of the original theory and objective.  Non-correlative diversification.  The premise was that investing a portion, often 10-15% of the overall portfolio in commodities actually reduced the overall volatility in the portfolio and would, in turn, boost long-term returns.  It would seem that after nearly nine years of generally rising equity markets and low interest rates, the need for diversification to balance risk is no longer present.  Now, maybe I am making something out of nothing here, but when I see news like this, my contrarian senses begin to tingle.  Have we really come to believe that there is no need for diversification, risk has been erased from the equity markets and commodities will remain lifeless?  I believe you often find such attitudes when you sit on the cusp of a significant change.

It is Thursday, which means weekly exports sales have been released but by no means do we find much exciting.  For the week ending May 18th, we sold a total of 457,200 MT or 18 million bushels of corn for the current crop year.  This number was 35% below last week and 33% under the 4-week average.  Top purchasers were a familiar lot with Japan taking 227.4k MT, Mexico 68.6k and Taiwan 67k.  Marketing YTD this brings the total sales to 2.097 billion bushels which is 94.2% of the target.  With 15 weeks to go, this means we need to average 8.6 million per week to hit the target. Note as well that in the daily reports, sales of 115.4k MT of corn to unknown destinations were posted. Soybean sales did bounce as we parted with 472,700 MT or 17.4 million bushels.  This was 33% above last week and 9% above the 4-week average and in the case of this market just pushes us further ahead of the targets. Top sales went to unknown destinations with 148.5k MT, followed by China at 130k MT and then Pakistan at 65k. With total sales now of 2.125 billion, we are at 103.6% of the goal.  Wheat sales were not huge, but we did move 201,900 MT or 7.4 million bushels. This was 19% below last week but 49% above the 4-week average.  We only have two weeks left in the marketing year but these sales did push us just beyond that target, and we currently sit at 1.043 billion, 1% above the mark.