There is no magic secret, just bet the multi-year trends and be right.
From October's "Commodity hedge funds face bleak future":
The thing I don't get about these whiny little commod (no 'e', yet) artists is the apparent failure to understand the words hedge or macro.
Dudes, you can go long or short. And do it in multiple, disparate commodities anywhere in the world.The directional trade for most commodities has been down for at least two years so price action alone would have guided you. Stepping up to the junior analyst level of granularity, a look at mining company (for example) capital expenditures over the last decade tells you to beware of supply/demand imbalances.
Unless of course the folks who were proclaiming commodities an asset class were simply full of it and were nothing more than longside trend followers charging alpha sized 2-and-20 for what was actually leveraged beta....
The next level, analyst or assistant fund manager, has you looking at global macro: Worldwide demand for most everything is satiated.
Finally, at the really old guy level you do the pattern recognition thing, "Say this reminds me of the agricultural depression of 1920" and go take a nap.
From Bloomberg:
Worst Raw-Material Slump Since ’08 Seen Deepening: Commodities
The commodity slump that spurred bear markets in everything from gold to corn to sugar this year will deepen by the end of December as prices head for their first annual loss since 2008, if history is any guide.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell in December 83 percent of the time since 1971 when the benchmark gauge was posting losses for the year through November, data compiled by Bloomberg show. The average December loss was 3.9 percent, which if it happened this time would mean a 7.8 percent drop for the year.If you had wanted to stick to equities a short of the gold miners is up over 50% unleveraged.
Investors pulled a record $34.1 billion from commodity funds since the end of December, according to EPFR Global, which started tracking the flows in 2000. Ample rains boosted global crops, increased mine output spurred supply gluts in metals and the U.S. is extracting the most crude oil since 1989. Economic growth in China, the biggest user of everything from soybeans to zinc to cotton, is poised to slow for a third year in 2013, according to economist estimates compiled by Bloomberg.
“It’s likely that the trend will hold through the end of the year,” said Michael Cuggino, who manages about $11 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “Investors see anemic or slowing economic growth in the world’s mature and emerging-market economies, while there’s more supply on hand. That translates to lower prices.”
2013 Losses
Fifteen members of the S&P GSCI are heading for annual losses, with grains and precious metals leading the declines. Corn tumbled 40 percent, on track for the biggest annual slump since the data begins in 1960. Gold is heading for the first yearly retreat since 2000 and silver is poised for the worst rout in three decades...MORE
Getting a bit of gearing:
Selling corn in December last year at $7.50 to today's $4.19 has been good for $3.31 per bushel of which there are 5000 in a contract. $16,550 on your initial $2363.
Gear it up some more, either by going to your prime or buying the options...
Say, have I ever told you about natural gas?
Just be right.
Here's corn and some of the posts:
We've been posting on this price weakness since December 2012:
Dec 2012
MarchCorn Hammered Limit Down on Stocks/Intentions Report
May
Corn: Deutsche sees potential for price below $4
July
Macquarie Calling For Corn in the Low $4's
August
4 Reasons Why Corn Could Get Cheaper Still
Corn Futures Resume Normal Service, Collapse
September
Iowa State's Worst Case Corn Prices: $2.89 By 2017
And many more. It's almost depressing how monotonic the declines have become.
