Page 143 - Food Outlook

VOLATILITY
CME net-length as % of open interests (Jan 2013 - Oct 2017)
Wheat
Market indicators
Volatility levels for maize and soybeans tended to track
US crop development, peaking in July and August when hot
and dry weather in the US briefly drove prices to one-year
highs. Historic volatility (based on 30 days) for wheat, maize
and soybeans reached 38, 28 and 23, respectively, during 40 summer months, with each declining by about 10 points by
October. Implied volatility (calculated by the level of option
premiums on underlying futures contracts) exhibited a similar
peaking pattern for July and August, with wheat, maize
and soybeans registering by October near historic low levels
of 17, 16 and 13, respectively. Overall levels were mostly
lower than the previous two years and disassociated from
other commodity markets, such as cattle or cocoa futures
which exhibited dramatic price swings and bouts of high
volatility. Crude oil volatility, often linked with maize markets
because of the amount of maize converted into ethanol fuel, remained subdued over the last six months.
percent
60
20 0 -20 -40 -60
2013 2014
2015 2016 2017
Managed Swap money dealers
Maize
INVESTMENT FLOWS
Managed money crisscrossed between long and short positioning as commercial traders took opposite strategies over the course of the past several months. After accumulating a record combined net short positon for wheat, maize and soybeans at the start of planting season in May, managed money swiftly covered its shorts to establish long bets, as weather concerns briefly drove prices 10 to 25 percent higher during July. Except for soybeans, these long bets were again abandoned for a return to short positioning as weather issues abated.
According to the hedge fund tracker Barclay Hedge, agricultural traders managing fund monies showed a return of 2.55 percent year-to-date compared to a loss of 2.40 percent in 2016. A long-term review found that the last double-digit return for these fund managers was 11.74 percent in 2011, and since then, returns have averaged about 2 percent per annum.
percent
40
20
0
-20
-40
-60
2013
percent
40 20 0
-40
-60 2013
2014 2015
Commercial
2016 2017
Managed Swap money dealers
Commercial
Swaps dealers, who manage passive funds that base
returns on futures price performance, have gradually
lessened their presence in the market over time. In 2010
and 2011, they were the focus of agricultural economists
for their outsized net long open interest in maize and
soybeans (over 30 percent) and wheat (over 40 percent). -20 Most recently, swaps dealers have reduced their positions to
Soybeans
the mid-teens or below as a percentage of open interest in all three commodities. The Deutsche Bank Agricultural Index Fund, which tracks 10 agricultural futures markets and is the largest agricultural fund by asset value, has foundered since 2011, reaching an all-time low of 18.66 in September 2017. By comparison, the most widely watched equity index, the S&P 500, has almost doubled in value over the last 6 years.
2014 2015 2016 2017
Commercial
Managed money
Swap dealers
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