We've talked recently about African Swine Flu sending the Hog market for a ride, and that's just the sort of thing we imagined in our 2019 Outlook whitepaper when we talked about the "return of Ag." There's been four straight years of volatility contraction for the Ag markets, and there's a real threat that the increasingly connected global food supply and increase in the volatility of the weather causes some outlier moves in Ag markets.
Enter Bloomberg, with their Pessimist's Guide to 2019: Fire, Floods, and Famine, a sort of worst case scenario they imagined where record forest fires, bigger and costlier hurricanes, and hotter and longer droughts unfolded into a sort of global nightmare situation with resulting food riots, bread lines, and all the rest.
Here's the pretend headline from the future they imagined:
"The heat El Niño released into the atmosphere helped push up world temperatures, making 2019 the warmest year on record. The disruption it brought to weather patterns unleashed floods and droughts, sparking forest fires, displacing people, creating food shortages, and upending energy and commodity markets."
It's as out there as you can get - and they even admit that maybe it "…sounds far-fetched" before pointing out that "all of the weather scenarios and most of the policy scenarios described here have happened in the past, just not at once." Bloomberg references case studies throughout the article where situations like this have all happened before - like the 2011 Brazilian Crop Devastation and the 1993 Japanese Rice Crisis.
Don't remember those crisis periods as well as the '07/'08 financial crisis here in the U.S.? Neither did we. So we looked up a couple of these examples to show how the futures prices were moving during these real-life crises.
1993 Japanese Rice Crisis
Here's how Bloomberg described the crisis, and the resulting price chart showing prices nearly doubling:
"The coldest-ever summer in many parts of Japan had damaged rice crops. Production was down 26 percent from a year earlier. Japanese consumers needed 2.7 million more tons than was on the market and rice stockpiled in government warehouses was less than 10 percent of that.
To make matters worse, in August there were media reports that harvests were still deteriorating across the nation. Some wholesalers began withholding their stockpiles. Rice prices in supermarkets started climbing. Eventually they would double. Because of hoarding, rice virtually disappeared from store shelves."
2010 Russian Wheat Export Ban
Bloomberg explains the dynamic inside Russia which caused the resulting price action:
"…the government banned export sales of wheat…
A drought in 2010 had slashed the country's wheat crop to a level barely above consumption. The ban was to ensure the country's consumers didn't have to compete with international buyers for the scarce supply. [But] As wheat futures soared on the Chicago Board of Trade, domestic prices in Russia, a top shipper of the grain, slumped."
All of this is to say - commodity markets don't care how many subscribers were added last quarter, how many cars produced, or what the Fed is up to. Commodity prices move to their own beat - based on things as variable as the weather, a drought, or a poor policy decision.
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.
Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.
Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.
Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.
RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.