Strategy

Dairy Opportunities Managed Futures Program

Dairy Opportunities is a fundamentally based, purely discretionary dairy managed futures trading program. The trading strategy is based on market conditions and has a proven track record of observing the CME dairy spot market and understanding how those spot prices will translate into the government prices released on the weekly NDPSR report which are ultimately used to calculate the final milk price.

Trading Strategy

Dairy Opportunities primarily trades basis. It looks for inconsistencies between cash and futures. By understanding the current cash environment, and anticipating forward levels, the program is able to take advantage of any premiums or discounts that the futures market may be carrying. It uses both futures and options within 90 days of expiration to execute this dairy managed futures strategy.

Decision Making

Dairy Opportunities typically maintains a 7-14% margin to equity ratio and utilizes both futures and options in its dairy managed futures trading strategy. Trading decisions are mostly made based on an analysis of fundamental factors, including:

  • Government agricultural reports
  • International market conditions
  • Daily communication with long-standing network of dairy industry professionals
  • Seasonal trends
  • Spreads between milk classes
  • Spreads between months

Dairy Volatility

Dairy markets are extremely volatile. From year to year, the underlying spot component prices routinely double in price or reduce by half. For example, during October 2014 the CME barrel cheese traded to a weekly average of $2.45/lb. only to fall to $1.45/lb. by February 2015. International whole milk powder traded at $5,100/mt in early 2014 before falling dramatically to $1,850/mt by the summer of 2015. In most cases, dairy derivatives move proportionately with the underlying spot prices. The Dairy Opportunities Program has experienced a fair amount of volatility itself and it understands how to manage risk in a volatile marketplace. The combination of the volatile underlying market and the trading style of the Program has led to varied month to month returns. In April 2014, In an attempt to further manage risk and make returns more palpable to the investor, the Dairy Opportunities Program lowered its average margin to equity ratio to 7-14% from the previous 35%, and the Program now buys out of the money puts and calls to protect at the money positions in the event of unexpected prices swings.

dairy products traded in dairy managed futures strategy

instruments traded in dairy managed futures strategy

Performance – April 2014 to present

(Performance from April 2014 to current reflecting a margin-to-equity range between 7% -14 %.  Please note that Dairy Opportunities has traded the Program since June 2009)

 JanFeb MarAprMayJunJulAugSepOctNovDecYTD
2017-0.23-3.80-4.02
2016-2.903.34-3.067.962.79-14.30-2.15-0.14-1.292.110.610.74-7.66
2015-0.873.77-2.28-2.41-3.371.142.621.43-7.492.622.30-1.95-4.97
20144.257.924.4312.2911.1816.773.409.097.26107.23

 *Past performance is not indicative of future results

DISCLAIMER: The table presented above is a composite of certain accounts traded pursuant to the Program since April 2014. Please note that Dairy Opportunities has trading the Program since June 2009. The trading performance of the Program since June 2009 is available upon request. The table presented above begins in April 2014 because Dairy Opportunities believes that the performance since April 2014 is more reflective of how the Program is currently traded. Specifically, prior to April 2014, between 35% and 50% of the equity in accounts participating in the Program was committed to margin positions. Beginning in April 2014, Dairy Opportunities lowered the typical margin-to-equity range to between 7% and 14%. The performance reflects the weighted average of performance of the accounts included in the table. Because Dairy Opportunities has not historically placed identical trades for accounts participating in the Program, the performance does not reflect the actual performance of any specific account. Moreover, there are other accounts managed by Dairy Opportunities that are not included in the table. Specifically, Dairy Opportunities currently manages one account for a commodity pool and one managed account (collectively the “Commodity Pool Accounts”) that are not included in the table because these accounts have different fee arrangements than other accounts managed by Dairy Opportunities. In addition, prior to July of 2015 only three accounts are included in the table. These accounts were selected because Dairy Opportunities believes that the performance of these accounts is most reflective of how the Program performed prior to July of 2015. This is because these accounts have participated in the Program for the longest duration, and had relatively larger net asset values than the accounts not included in the table. However, since July of 2015, the performance of all of the accounts managed by Dairy Opportunities (other than the Commodity Pool Accounts) is included in the table. The Assets Under Management (“AUM”) are rounded to the nearest twenty five thousand dollars as of the last month presented. The AUM only includes assets in the accounts included in the performance table. This presentation is directed toward investors fitting the definition of Qualified Eligible Persons as the term is defined under Commodity Futures Trading Commission Regulation 4.7, and does not include the assets in the Commodity Pool Accounts. Futures trading involves substantial risk of loss and is not appropriate for everyone. Only risk capital should be used when trading in the futures markets. Past performance is not necessarily indicative of future results.

PERFORMANCE – June 2009 to Present

(Includes performance during June 2009 to March 2014, when margin-to-equity range was between 35% and 50%)

 JanFeb MarAprMayJunJulAugSepOctNovDecYTD
2017-0.23-3.80-4.02
2016-2.903.34-3.067.962.79-14.30-2.15-0.14-1.292.110.610.74-7.66
2015-0.873.77-2.28-2.41-3.371.142.621.43-7.492.622.30-1.95-4.97
201470.4712.81-49.114.257.924.4312.2911.1816.773.409.097.26102.80
20135.22-3.29-0.06-19.03-1.67-48.8321.08-2.334.8524.7313.68-18.12-54.71
20127.20-20.184.89-9.7222.977.11-7.7810.4127.507.27-26.27-4.035.16
2011164.039.93-13.14-7.8941.5324.3758.33-17.05-26.4719.24-7.531.04339.76
20104.20-3.63-5.9010.40-5.820.511.68-4.86-22.69-11.622.546.62-28.64
200919.42-5.665.21-4.75-12.496.13-20.08-16.20