A historic drought continues to plague America’s farms causing corn crop yields to plunge and prices to surge.
However, investors are left wondering if they can capitalise on the phenomenon.
Waverly Advisors recently tackled the question.
Tactical Q&A: Grains –Too Late to Go Long?
“Is it too late to add grain exposure to my portfolio via an ETN? Is price too extended here or do you think the risk level is worth the upside opportunity?”
Waverly CIO Adam Grimes:
“The short answer is: it’s complicated. In any “normal” situation, both of those are far too overextended to consider adding, but this is very much a not-normal situation. There is good upside potential, but I’d encourage you to focus more attention on the risk. I guess the question I would ask is, “how are you from the ideal entry point your trading model or methodology would have given, had the particular ETN you are considering been in the mix all along?” I’m assuming we would be adding up here pretty far from the first entry spot, so I’d be conservative and probably add only a small piece of the position (say, between 25% – 33%).
I’m guessing there’s probably also a lot of retail money in these grain ETNs, so things could get a bit nuts… to either the upside or the downside. Respect the risk. Above all, I wouldn’t add the full position size here today, even though that may turn out to be the right thing to do weeks down the road… there’s just too much downside risk in something this overextended.”
Photo: Waverly Advisors