Trading the Argentine Agro Strike

Below is an excerpt from my post Wednesday about the Argentine agro strike:

……The final words are on how to trade the situation. Goldman Sachs pointed out the weakness in a note yesterday morning, and today soybeans traded limit up on the CBOT. This might sound big, but the limit is 50c on a U$13 contract so you can bet there's more upside to come. Another idea would be Bunge (BG), the grain processor with Argentine soybean exposure that may be adversely affected by the reported zero stocks at its Ramallo processing mills. A similar play (which might be used as a trade-off arbitrage with a BG short) would be a long on Archer Daniel Midland (ADM), with less local exposure levering against the gain from any large price hike in grains. Selling Argentine sovereign bonds is a trade to consider, as might shorting local agro play Cresud (CRESY) which is an investor-unfriendly beast even at the best of times….

So that was the call and Wednesday’s trading went very well considering this:

Soybeans in Chicago Advance by Daily Limit on Argentina Protest

By Aya Takada and Marianne Stigset

March 26 (Bloomberg) -- Soybeans in Chicago soared by the daily limit on concern that supplies from Argentina may be curbed after farmers blocked ports and threatened to plant fewer crops in protest at a rise in export taxes............

We also had this:

CHICAGO, March 26 (Reuters) - Bunge Ltd (BG.N: Quote, Profile, Research), the world's largest oilseed processor, said on Wednesday it has declared force majeure on shipments from Argentina due to a farmer strike that has entered its second week.

"We have had to declare force majeure on certain contracts, but because we have a global asset network, we are working to serve customers with supply from our operations in other major origins," said Bunge spokesman Stewart Lindsay. (Reporting by Lisa Shumaker)

What about that ADM vs BG arbitrage play?

And not forgetting this from Bloomberg:

....The yield premium investors demand to own Argentine bonds over Treasuries widened 18 basis points, the most in emerging markets, to 5.53 percentage points in New York, according to JPMorgan Chase & Co.'s EMBI Plus index. A basis point equals 0.01 percentage point.

The risk of owning Argentine bonds also surged today, according to Bloomberg data. Five-year credit default swaps based on the country's debt climbed 23 basis points, the most since Feb. 8, to 556 basis points. That means it costs $556,000 to protect $10 million of the country's debt from default....

In fact, of all the possible trades mentioned, the only theoretical loser was CRESY that finished 18c up at U$15.73. You might have had problems getting in on the soybean trade at it just limited up on us, but there was plenty of coin available in all the other outlined trades.

Disclosure: I took a short position in BG Wednesday morning and it’s still open. It is strictly a near-term trade.