Ashmead Pringle of the GreenHaven Group says demand from the ever-increasing global populace will bring sunshine to the food commodity markets.
Nancy Zambell: My guest today is Ashmead Pringle, the Co-Founder and President of the GreenHaven Group, which is a commodity-based business. Ashmead, thank you so much for joining me today.
Ashmead Pringle: It's my pleasure to be with you, Nancy.
Nancy Zambell: I understand that you run an ETF, an exchange traded fund, called the GreenHaven Continuous Commodity Index Fund (GCC). Can you tell me a little about the index that you're tracking?
Ashmead Pringle: The index that we chose is the Thomson Reuters Continuous Commodity Index, or the CCI for short.
It used to be known as the CRB index until 2005, and the CRB index goes all the way back to 1957. It's the longest running published commodity futures benchmark. It was renamed CCI in 2005, but its composition didn't change then.
It's an equal-weight index, and it now has 17 commodities that include metals, energy, agriculture, and the so-called soft commodities, which are cotton, coffee, cocoa, and sugar. It has a relatively low energy weighting-about 18%-and that's a major differentiator from some other indices, which have up to 60% or 65% energy.
Nancy Zambell: That's because energy has done so well.
Ashmead Pringle: Yes, it has done well at times. But to be fair, agriculture's done quite well also.
Actually, if you look back over the last four or five years, the energy-heavy
indexes in this space have actually done pretty poorly because of what's called
the roll yield in those markets, where the essential cost of moving the position
from an expiring month to a new month has been a tremendous drag on returns. The
CCI index has performed really well versus the energy-heavy ones.
Nancy Zambell: I bet a lot of people aren't aware of that. Looking back at some of my research for the past year, it looks like commodities such as grains and corn performed better for the year than almost anything other than palladium. Can you comment about what's going on in the grain market today?
Ashmead Pringle: Grains did very well in 2012. The tremendous drought in the US sent corn and wheat and soybean prices very, very high. And that also priced US exports out of export markets to some degree. So, we actually lost some market share.
Those prices are beginning to subside from those peaks, due to the forecast for large planted acres, and so far pretty decent weather. It looks like we'll be able to have ample stocks domestically by the time we reach the fall.
So stocks have been easing back from their drought highs, but we think they'll maintain the level that they moved up to in 2005 and 2006, when there was a secular shift up in grain prices.
Nancy Zambell: Now what about energy? Are there any particular segments in energy that you really like right now?
Ashmead Pringle: Yes, we think natural gas is performing pretty well. It had been very cheap last year because of the extremely mild winter that we had, which left us with record-high stocks in storage at the beginning of this heating season.
But we've had a fairly good winter and cold February and March, so those overhanging stocks have really been totally depleted, or will be in the next week or two. And we're going to end the heating season with natural gas in storage that's a little bit less than the five-year average. So that's firmed prices a bit.
There will be a shift away from natural gas, probably, at these prices-back to coal-by the power utilities, because coal is a good bit cheaper than natural gas right now. But we think that gap will probably close by coal rising rather than natural gas falling too much.
Nancy Zambell: Is there anything going on in the cotton market? I noticed that year-to-date, it looks like cotton has done very, very well, and didn't do too badly last year. Is there just an increase in cotton demand now?
Ashmead Pringle: Well, I'm not tracking cotton very closely these days. China is the world's biggest producer and also the biggest user. And the US-though it's not the largest cotton producer-is kind of a swing market, and so our exports can fill the gap when there's a problem elsewhere.
Nancy Zambell: Let's turn to the real estate side of the equation. Are you seeing a rise in the demand for farmland?
Ashmead Pringle: Oh yes. It's across the news. You're reading about record prices for farmland-particularly in the Midwest-at auctions.
It remains to be seen if those prices will work. Some folks wonder if there's a bubble there. It certainly is going to depend on how well crop prices maintain the high levels.
We think that the best deals in farmland, domestically, are not in the Midwest, but in other states that have good growing conditions and also have good access to water-and maybe land that would be converted from timber or from other crops. But farmland has become a very, very popular asset class, though it can be quite difficult to access.
Nancy Zambell: Did the prices of farmland correlate at all with the general real estate market? Because obviously we've had a really nice housing market recently, with more demand for residential property.