This post was originally shared on my eToro feed in May 2022. Make sure to follow me there as well, and did you know that you can copy my trading there for free? Create an account today, copy my portfolio by searching for user “Allseasonsport” to automatically duplicate my All Seasons Portfolio strategy effortlessly.
Since I joined eToro in April last year, I have been sharing insights and observations about investing with risk balanced strategies such as the All Seasons Portfolio strategy I run there. As eToro is a social trading platform, I from time to time share content in my eToro feed, which I then share on the blog in posts like this.
The big news surrounding CBOT traders the past few weeks is the very wet and unusually cool weather this spring in the northern U.S. Plains, affecting farmers in North Dakota, northern Minnesota and parts of South Dakota.
For example, the planting progress for North Dakota corn reached 20% last week, compared to a 66% annual average at the same point in time in previous years, while spring wheat recorded 27% completion versus a 80% average.
The numbers are, in other words, far off from a typical year. The similar grim story is told for soybeans, albeit these are less delayed than wheat and corn on a nation-wide level, but with North Dakota (the fourth largest soy area in the U.S.) being again significantly behind.
The wet conditions have made it difficult to get the crops into the ground, with the U.S. corn planting running at the second-slowest pace in more than a quarter century, and spring wheat planting being THE slowest on record.
What consequences can be expected?
Firstly, the longer planting is delayed, the lower probability of a good crop yield come harvesting season, as crops don’t have as much time in the ground to grow before autumn harvesting.
Secondly, farmers can insure their crops against losses which occur during the crop year, including losses due to drought, freeze and disease. But, the insurance only covers crop planted by a certain date, being 31 May 2022, and with the delayed planting season, it is likely that most crops will not be insured, or even go unplanted this year as farmers run behind schedule.
Thirdly, smaller harvests in the autumn caused by the potentially lower crop yields will cause lower supply of both wheat and corn and it goes without saying, but is still worth emphasizing, that while Americans can still expect to find food on the shelves, price of these commodities and thus foodstuff will increase. This will push up the price of ETFs tracking only agricultural commodities.
Rising food prices is inflationary, why we may expect the elevated inflationary regime to continue, but it also causes social distress in emerging markets that rely on food imports. These effects are already clearly visible in countries, with Sri Lanka making the most headlines.
Hence, it is wise to protect both your portfolio against inflation, as well as your purchasing power against expected higher food prices, by including exposure to these agricultural commodities, as well as broad commodities in general, in your portfolio.
All of the mentioned grains are core parts of the Market Access Rogers International Commodity Index ETF (on DEGIRO) and iPath Bloomberg Commodity Index Total Return ETN (on eToro) broad commodity ETFs that make up 7.5% of my All Seasons Portfolio. This exposure is ever present in my strategy to provide protection against inflationary market regimes, and has dampened the overall drawdown YTD 2022 of my portfolio.
Moreover, I have recently started launching trading strategies on Europe’s leading social trading platform Wikifolio. This is a trading platform with similar functionality as eToro as you can easily invest in strategies of other successful investors and fund managers. The first strategy I started managing on this platform is an optimized commodity strategy which is better diversified than conventional commodity ETFs (which tend to have too high exposure to energies) as it seeks to maximize the diversification through allocating across 24 commodities weighted to achieve lowest possible portfolio correlation. This is based on papers from two acclaimed risk parity asset managers: AQR and ReSolve. Create an account today at Wikifolio.com and look for user RiskParityNick for more information.
And you can read more about the drought in the U.S. in a story published via Reuters on 24 May: “Avoid a potential misread on U.S. planting pace in delayed states”
You are more than welcome to stick around for this journey that I have been on for several years already with this strategy, and I look forward to interacting with you along the way. And make sure you look up my profile on eToro, if you haven’t already.
All the best,
Nicholas
The opinions shared in this article are those of the author and do not constitute investment advice in any form. Any mentions of my trading strategy are for descriptive and information purposes only of what I do with my money. All investments carry the risk of capital loss.
This post includes affiliate links for eToro, and by clicking the links, I may get a compensation, at no extra cost or disadvantage for you. On eToro, the trading on my account is done with my own money, and if you chose to copy my trading, I have skin in the game and incentives to stick to my strategy and perform well.
