We at Sugar Creek Investment Management, LLC believe that capturing fundamental alpha in agriculture requires in-depth knowledge about the underlying commodities, such as how they are produced, priced, traded, and consumed. We also believe that one cannot back-test discretionary fundamental agriculture trading and that forecasting positive returns is a function of qualitative judgment made on the trading specialist’s ability to manage risk/reward in a practical manner in respect to their trading discipline and market focus.
This trading philosophy is just one of many but it is where we feel we have an edge and it is an approach that we believe is most suitable for trading in the commodity space. Critical to all of this is filtering fundamentally unique trading opportunities and grading out the true risk/ reward potential in a trade. Idea generation and market know-how are a prerequisite in the discretionary commodity trading space. We have found that this is more of an art than a science derived often from years of industry experience and trade management. For our fundamental specialist agriculture traders risk and reward go hand in hand as the discipline required to properly select a trade opportunity is just as strong as that of managing the trade when it’s on the books. Over extending for opportunities that do not truly offer adequate risk/ reward do not consistently pay-off. Risk management begins prior to trades being placed.
Understanding the economics of physical commodity businesses is a paramount task which discretionary fundamental trading specialists are constantly challenged with in the agriculture markets. This requires a strong understanding of the individual components which determine profit margins. This analysis of market fundamentals can give traders an edge in generating opportunities and determining the best types of trading strategy to implement. By understanding the nuances of producer and merchant margins, discretionary fundamental traders can better assess what is known as buy-side and sell-side hedging activity that takes place in the futures market. The most margin sensitive hedgers are active on both the buy and sell-side; those include merchandisers, livestock feeders, and processors. While more traditional sell-side hedgers can include producers who have less market related margin risk, as their input costs are more tied to the operational overhead.
The fundamental discretionary trader is the non-commercial participant which typically finds fundamental analysis most useful in driving trading decisions in the agriculture markets. Many of the fundamental discretionary traders are registered with the U.S. CFTC as commodity trading advisors (CTA’s) which allows them to market themselves as an investment vehicle and manage client money in individually separate managed accounts. To a lesser extent there are also agriculture specialist hedge funds which manage client money through on-shore and off-shore vehicles. Since the beginning of the 21st century, the agriculture markets have witnessed significant growth in the number and size of assets under management and managers across the agriculture markets. The increase in speculative trading across agriculture markets at the turn of the century can be attributed to the evolution of electronic trading as global Non commercials were increasingly allowed greater access, transparency, flexibility to executing trades on commodity exchanges. More recently, inflationary risks have attracted Non commercials, as global Central Banks stimulus, and U.S. Federal Reserve policy measures have increased the flow of money in the market place. Fundamentally speaking, agriculture markets have been attractive in regard to theories and scientific research surrounding climate change and its possible implications on the future of global agriculture production. Additionally, social economics involving population growth, changing dietary habits and emerging market demand have all had an impact. Commercial trading (i.e. producers, processors, end-users) across agriculture markets has also seen significant growth over the last decade plus. For example this has been witnessed in corn, sugar, and soybeans markets have seen new demand come in the form of renewable energy initiatives across the world. This relatively new dynamic has had direct and indirect affects across the agriculture market which has increased participation by both commercials and non-commercial traders.
These traders commonly come from having physical commodity backgrounds such as having been a grain merchandiser for Cargill, or sugar trader at Louis Dreyfus. Other traders which have built out money management businesses have come from the agriculture trading pits of Chicago where they were successful proprietary traders and or brokers for large commodity customers. In most cases, the fundamental discretionary commodity trader has spent an invaluable portion of their career working for or with fundamental commodity businesses where they learned the fundamental pillars of what drives supply and demand for each individual commodity they trade.
At Sugar Creek we have built a discretionary commodity trading business around talented and experienced fundamental traders. Having grown up in agriculture I myself can appreciate the risk/ reward, price cyclicality, and opportunities that exist across the sector. From a hedging perspective accessing deeper liquidity further out on the curve increases the physical participants ability manage risk and market production. Responsible Non commercials serve a great purpose and are vital for the health of the commodity futures and options industry.
The Sugar Creek Vintage Trading Programs (SCVTP’s) and the Sugar Creek Agriculture Trading Fund, LP is a collection of purely fundamental specialist agriculture commodity trading strategies managed by industry veterans who have either significant experience trading in cash and physical commodity markets or have traded as counterparty to large physical commodity traders. This depth and experience provides Sugar Creek’s traders with a key information edge due their extensive trading network which allows them to implement positive risk/ reward strategies in the agriculture marketplace. The SCVTP’s exhibit a heavy tilt towards bottom up fundamental supply/ demand strategies such as seasonal price direction and spread trading strategies. Each program’s fundamental focus will be to exploit short term inefficiencies across term structures and participate in long term directional trends in agriculture markets. Each program in the Sugar Creek collection is able to adapt and profit from changes in price behavior across their markets. The SCVTP’s can be accessed via separately managed account investments. Investors can access the entire collection or a custom selected suite of programs via a commingled managed account format with Sugar Creek Investment Management, LLC.
FOR QUALIFIED PERSONS ONLY (QEPs). FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALSO LARGE POTENTIAL RISKS. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT THEM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS AND IN ORDER TO INVEST IN THE COMPANY. DO NOT TRADE OR INVEST WITH MONEY YOU CAN’T AFFORD TO LOSE. THIS DOCUMENT AND ITS CONTENTS ARE NEITHER A SOLICITATION NOR AN OFFER TO BUY OR SELL FUTURES, STOCKS OR OPTIONS ON THE FUTURES OR OPTIONS MARKETS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT OR INVESTMENT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE DISCUSSED IN THIS DOCUMENT (IF ANY). THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR METHODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Sugar Creek Investment Management, LLC accepts no liability for any errors or omissions arising as a result of transmission. Any proposals, offers or other potential terms described or referred to in this message are "subject to contract" and shall not be binding on any member of the Sugar Creek Investment Management, LLC, or any affiliate thereof, unless otherwise expressed and intended or until documented in a written agreement executed by all necessary parties by their duly authorized representative(s). Past performance is not indicative of future results.
Sugar Creek Investment Management, LLC is a Member of the National Futures Association and registered as a Commodity Trading Advisor and only provides services to Qualified Eligible Participants (QEPs) as defined in section 4.7 of the Commodity Exchange Act.
With warmest regards,