Commodity Field Analysis in Action

Transcription

1 Commodities Commodity Field Analysis in Action The Value of Field Analysis in the Active Commodity Investment Process As an active commodities manager, the strength of our expertise rests in the depth and rigor of our fundamental investment process. The team conducts bottom-up analysis focusing on supply and demand balances, inventory trends, valuation, market participant composition, technical data and structural curve analysis. Additional inputs feed our investment process, including the macro environment, the potential influence of event risk on commodity prices, and onthe-ground due diligence field trips. This last component, field analysis, is one of the factors that distinguishes the Cohen & Steers Active Commodities strategy and, in our view, helps us gain an edge in decision making. These trips provide our team with insights into many aspects of the commodity lifecycle from extraction of the raw material, to production and processing, and finally to the end product. By understanding the supply-chain process, we learn about the many variables that can influence commodity futures price activity. Over the years, we have cultivated relationships with farmers, ranchers, agronomists, and other sector specialists in commodities, whom we engage with regularly. Importantly, we do not conduct field analysis with the intent of making a specific trade, as its primary purpose is educational. However, for example, in the case of extreme weather events such as drought or flooding, we may visit a location and meet with field experts directly impacted to learn first-hand about the issues that have the potential to move prices. In the following pages, we document some of our trips and provide examples of how these aided the investment process. Not an inducement to buy or sell commodity interests. Advisors & Investors: Institutions & Consultants:

2 Commodity Field Analysis in Action Examples of field analysis trips the Active Commodities team has taken: U.S. Trips Deep water drill rigs in the Gulf of Mexico Refineries and land rig in Louisiana Coal mines in Texas and West Virginia Aluminum smelter in Texas Copper and gold mines in Nevada/Arizona Cotton fields / USDA ginning facility and greenhouse in Texas Grain crop tours/grain elevators in Nebraska, Iowa, South Dakota, Illinois, Minnesota Palladium mines, smelters, refinery in Montana Cattle ranches and auction house in South Dakota Hog slaughter house (full distribution center) in Iowa Energy policy meetings (DOE, EPA, State Department, White House) in Washington D.C. Natural Gas/coal power plant tour in New Jersey USDA Annual Agriculture Forum in Washington, D.C. Exchanges: NYMEX, COMEX, CME/CBOT, MG Non-U.S. Trips Copper mines, smelters, refineries in Chile (El Teniente, Chuquicamata, Radomiro Tomic) Oil sands in Alberta, Canada Macro-trends / industrial progress in China (Shanghai, Beijing) and India Refineries and petrochemical complex in India (Mumbai, Jamnagar) Gold and iron ore mines; aluminum can manufacturer, eucalyptus tree farm in Brazil (Rio de Janeiro, Sao Paulo, Vitoria, Belo Horizonte) Ports and terminal tours which handle sugar and soybeans trade in Brazil Coffee farms and cotton fields in Brazil Corn and soybean fields in Argentina OPEC meeting in Vienna All photographs were taken by the Cohen & Steers Commodities Team. 2

3 Agriculture Corn, Soybeans, Wheat, Coffee, Sugar and Cotton U.S. Locations: Midwest U.S. Crop Tours. The team joined seasoned crop analysts from Lanworth, Inc., ProFarmer and Morgan Stanley to conduct corn and soybean crop field surveys. The ultimate goal was to arrive at a yield (bushels per acre) estimate per crop, by district, by state, and finally at a national level. Non-U.S. Locations: Buenos Aires, Argentina & Goias and Sao Paulo, Brazil Toured large industrialized farms, met with farm operators and agronomists, leading industry groups and government agencies, agriculture producing companies, and government officials. 3

4 Commodity Field Analysis in Action Livestock Live Cattle, Feeder Cattle and Lean Hogs U.S. Locations: South Dakota and Marshalltown, Iowa Toured small and large cattle feedlots, cow-calf farms, background-stocker operations and livestock auctions, met with feedlot owners, operators and ranchers. The team visited the JBS pork processing plant in Marshalltown, Iowa which is the 3rd largest pork processing facility in the United States, with more than 2,400 employees. It is a full distribution center (live animal barn to boxed products ready for global shipment), where they process 20,000 head per day. The plant produces and distributes a wide variety of high quality pork products. 4

5 Metals Aluminum, Nickel, Copper, Zinc, Gold, Silver, Platinum and Palladium U.S. Locations: Nye, Montana and Morenci, Arizona Stillwater Mining Company is the only U.S. producer of platinum group metals (PGMs) and the largest producer of PGMs outside of South Africa and the Russian Federation. PGMs are rare precious metals most commonly known for their application in jewelry, dentistry, coinage, electronics and auto catalysts. At Stillwater s mining operation in Montana, members of the Active Commodities investment team learned about the extraction, processing, smelting and refining of palladium, as well as the recycling of spent catalytic converters. Phelps Dodge Copper Mine (Phelps Dodge is today owned by Freeport-McMoran) in Morenci, Arizona. The ore mined at this site was used exclusively for leaching which uses bacteria to extract copper from the ore and solvent extraction/electrowinning to recover copper from the resulting leach liquor. Non-U.S. Locations: Foshan China (Guangdong Province), Chile, Japan Toured facility with warehouse manager to gain insight and understand recent trends in base metal stockpiling in China. Toured one of the biggest open pit copper mines (Chuquicamata) in the world in northern Chile and one of the biggest underground mines (El Teniente) near Santiago. Met with operating managers who explained the process from excavation to refining and smelting. Discussed ore grades, operating costs, and supply challenges due to the lack of consistent power sources in the country. 5

6 Commodity Field Analysis in Action Energy Petroleum U.S. Locations: New Orleans, Louisiana and Cushing, Oklahoma Toured drillship (170 miles of the U.S. Gulf Coast) to gain insight into challenges of deepwater oil exploration and production. Also met with oil service companies on board to understand how important components like the BOP (blowout preventer) operate. Toured the grounds and met with storage operators. Cushing, OK is the primary crude oil storage location in the U.S. It has long been considered a vital transshipment point for benchmark West Texas Intermediate (WTI) crude oil as the location has many intersecting pipelines, storage facilities with access to refiners and suppliers. Non-U.S. Locations: Calgary, Alberta Canada Toured on foot and by helicopter Shell s Albian oil sands mining operations to understand the processing complexity of North America s marginal barrel of oil. 6

7 Energy Natural Gas U.S. Locations: Colorado and New Jersey Toured natural gas drilling rigs and processing facility in the Paradox Basin (southeast Utah/southwest Colorado) with a private equity firm to understand the costs involved in extracting natural gas out of the ground, processing it, and getting it to the market in various forms. Toured PSEG s Hudson Generating station which can switch between coal and natural gas to generate electricity. This helped us understand the decision making process involved in switching between the two fuel sources, the time and flexibility it takes to switch, and the amount of coal inventory that can be kept on site. 7

8 Contact Information Michelle Butler Senior Vice President, Portfolio Specialist Phone Park Avenue, 10th Floor New York, New York Important Disclosures The views and opinions in the preceding commentary are as of the date of publication and are subject to change without notice. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice, is not intended to predict or depict performance of any investment and does not constitute a recommendation or an offer for a particular security. We consider the information in this document to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of suitability for investment. Investors should consult their own advisors with respect to their individual circumstances. Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A summary prospectus and prospectus containing this and other information may be obtained by visiting cohenandsteers.com or by calling Please read the summary prospectus and prospectus carefully before investing. Risks. An investment in commodity-linked derivative instruments may be subject to greater volatility than investments in traditional securities, particularly if the instruments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. Among the risks presented are market risk, credit risk, counterparty risk, leverage risk and liquidity risk. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. Futures Trading Is Volatile, Highly Leveraged and May Be Illiquid. Investments in commodity futures contracts and options on commodity futures contracts have a high degree of price variability and are subject to rapid and substantial price changes. Such investments could incur significant losses. There can be no assurance that the options strategy will be successful. The use of options on commodity futures contracts is to enhance risk-adjusted total returns. The use of options, however, may not provide any, or only partial, protection for market declines. The return performance of the commodity futures contracts may not parallel the performance of the commodities or indexes that serve as the basis for the options it buys or sells; this basis risk may reduce overall returns. This commentary must be accompanied by the most recent Cohen & Steers Fund fact sheet(s) and summary prospectus if used in connection with the sale of mutual fund shares. This is not an inducement to buy or sell commodity interests. Trading in commodity interests involves a risk of loss. Past results are not indicative of future results. Investors should consider whether commodity interests are suitable investments. Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds. About Cohen & Steers Cohen & Steers is a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure, commodities, and natural resource equities, as well as preferred securities and other income solutions. Founded in 1986, the firm is headquartered in New York City, with offices in London, Hong Kong, Tokyo, and Seattle. Publication Date: September Copyright 2016 Cohen & Steers, Inc. All rights reserved. cohenandsteers.com Advisors & Investors: Institutions & Consultants: C