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Open interest in ag futures spike in 2017Open interest in ag futures spike in 2017

Live cattle trading has experienced a sharp increase in 2017 versus last year. Are we at the cusp of a new investment cycle in commodities – agriculture included?

Nevil Speer

October 5, 2017

2 Min Read
Open interest in ag futures spike in 2017

The Financial Times recently ran an article titled, “Commodities markets swell in size despite price slide.” The discussion focused on increased commodity open interest at the major futures exchanges in 2017. “Market size has increased by nearly 1.4m contracts in the first nine months of 2017, the most in seven years,” according to the article. Interestingly enough, that’s occurred amidst stagnant commodities prices.  

There are any number of explanations for the uptick in open interest. Those include:

  • The contrarian bet may be swinging back toward commodities

  • Lower prices enable investors to leverage their dollars more effectively

  • Reduced volatility translates to less dollars required to meet margin calls.

All of those add up to fund managers increasingly viewing commodities as an alternative investment.

That said, this week’s illustration focuses on four key ag commodities: corn, soybeans, live cattle and lean hogs. The trend described in the Financial Times article appears to be at play in the ag sector. The graph reflects weekly average open interest across the four contracts. This year’s total equals roughly 2.67 million contracts – versus 2.56 million in 2016, despite softer prices across all commodities. Most notably, live cattle trading has experienced a sharp increase in 2017 versus last year. 

 

How do you view these trends? Is this a good sign for agriculture going forward? There’s increasingly a lot of discussion around inflation; do you perceive fund managers using commodity market investment as a hedge against inflation? Are we at the cusp of a new investment cycle in commodities – agriculture included?

Where do you ultimately see prices headed in the next few years? Leave your thoughts in the comments section below.

Nevil Speer is based in Bowling Green, Ky., and serves as vice president of U.S. operations for AgriClear, Inc. – a wholly-owned subsidiary of TMX Group Limited. The views and opinions of the author expressed herein do not necessarily state or reflect those of the TMX Group Limited and Natural Gas Exchange Inc.

About the Author(s)

Nevil Speer

Nevil Speer serves as an industry consultant and is based in Bowling Green, KY.

Nevil Speer has extensive experience and involvement with the livestock and food industry including various service and consultation projects spanning such issues as market competition, business and economic implications of agroterrorism, animal identification, assessment of price risk and market volatility on the producer segment, and usage of antibiotics in animal agriculture.
 
Dr. Speer writes about many aspects regarding agriculture and the food industry with regular contribution to BEEF and Feedstuffs.  He’s also written several influential industry white papers dealing with issues such as changing business dynamics in the beef complex, producer decision-making, and country-of-origin labeling.
 
He serves as a member of the Board of Directors for the National Institute for Animal Agriculture.
 
Dr. Speer holds both a PhD in Animal Science and a Master’s degree in Business Administration.

Contact him at [email protected].

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