Index Fund Sponsor Ashmead Pringle Likes Agriculture

By Brad Zigler

Ashmead Pringle is the founder and president of GreenHaven Commodity Services, Inc., the sponsor of the GreenHaven Continuous Commodity Index Fund (AMEX: GCC), an exchange-traded portfolio tracking what used to be known as the CRB Index. In its last iteration, the Commodity Research Bureau's benchmark became an equal-weighted compendium of 17 commodity futures contracts. GCC commenced trading in January.

Equal weighting, by its nature, reduces the influence of energy futures compared to the indexes used by competing ETFs such as the iShares S&P/GSCI Commodity-Indexed Trust (NYSEArca: GSG) and the PowerShares DB Commodity Index Tracking Fund (AMEX: DBC) and that, in turn, has reduced the fund's volatility. GCC, for example, produced a since-inception return nearly identical to GSG's with a fifth less volatility.

Broad-Based Commodity Index ETFs

Pringle was interviewed by Hard Assets Investor back in March (http://www.hardassetsinvestor.com/component/content/article/716.html and http://www.hardassetsinvestor.com/component/content/article/727.html), but we caught up with him at yesterday's Inside Commodities conference at the New York Stock Exchange for a brief chat.

Hard Assets Investor [HAI]: There's been a lot of volatility in the Agriculture sector this year. As an equal-weighted portfolio, Ag plays a relatively larger role in GCC than it does in the GSG or DBC portfolios. Were soaring corn and wheat prices supported by fundamentals earlier this year?

Ashmead Pringle (Pringle): Yes, in good part. In corn, the U.S. is the world's biggest producer and exporter. Shifting 30% or more of our production into ethanol tightened the export markets. China is or has become a corn importer now. Before, it was an exporter. Global stocks have been in decline in grains in general. In wheat, stocks were tight, and a short squeeze developed in Minneapolis wheat which spilled over into the Kansas City and Chicago wheat contracts. Grain fundamentals supported higher prices, but speculators no doubt took them higher yet. The sell-off since July has taken most of the excess out of the Ag markets, though.

HAI: What role did so-called "index speculators" have, if any, in the run-up and subsequent decline?

Pringle: The index funds added upward price pressure as they built their positions. Their future flows in and out will continue to have an effect on prices. Currently, index funds hold large percentages of the open interest in wheat, cattle and hogs, and in general, their rolling of long positions forward has tended to put more contango on the markets. I think the speculative funds had more influence on prices, though, since they tend to be highly leveraged. Index funds are usually not leveraged at all. [Editor's note: The influence of index funds on futures prices is examined in "Congress Blames Index Speculators."]

HAI: What influence does energy have upon crop prices?

Pringle: A lot. nitrogen fertilizers are closely linked to natural gas, petroleum is an input to herbicides and pesticides, and fuel cost is a sizable input cost for the farmer. Shipping costs are tied to fuel costs, and so influence the prices of Ag commodities across the delivery chain.

HAI: What should investors know about seasonal patterns in the Ag markets?

Pringle: There is some seasonality that's related to weather and the seasons (obviously), but it's not something I'd encourage folks to trade. Normal seasonality is in the markets, anyway.

HAI: What are the most attractive Ag markets now?

Pringle: We tend to lump cotton and livestock in the Ag sector, and sometimes sugar. Mainly, we think commodities are still a buy, especially after this big correction. They've all been beaten up pretty good and should rebound in the next few months. Corn and cotton should lead.

HAI: Thanks for taking the time to chat with us.

Comments

[adan:]

great info, thanks!

2008 Nov 05 01:10 PM