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The Art of Investing Smartly

Investors frequently fall victim to the sunk cost fallacy. Often they base their trading decisions on acquisition prices. ‘I lost so much money with this stock, I can’t sell it now,’ they say. This is irrational. The acquisition price should play no role. What counts is the stock’s future performance (and the future performance of alternative investments). Ironically, the more money a share loses, the more investors tend to stick by it.

 

This irrational behavior is driven by a need for consistency. After all, consistency signifies credibility. We find contradictions abominable. If we decide to cancel a project halfway through, we create a contradiction: we admit that we once thought differently. Carrying on with a meaningless project delays this painful realization and keeps up appearances.

Concorde is a prime example of a government deficit project. Even though both parties, Britain and France, had long known that the supersonic aircraft business would never work, they continued to invest enormous sums of money in it – if only to save face.

Abandoning the project would have been tantamount to admitting defeat. The sunk cost fallacy is therefore often referred to as the Concorde effect.

It leads to costly, even disastrous errors of judgement. The Americans extended their involvement in the Vietnam War because of this. Their thinking: ‘We’ve already sacrificed so much for this war; it’d be a mistake to give up now. ’We’ve come this far?. . .’ ‘But I’ve spent two years doing this course? . . .’ If you recognize any of these thought patterns, it shows that the sunk cost fallacy is at work in a corner of your brain.

Ensure you’re capital is not at sea to the “Concorde effect.” Speak to us today.

BOOM: The Growth and Demand of Soybean 2016 / 2017

The growth and demands of soybeans 

Globally, soybeans are the fourth leading crop produced by volume. 

Whilst part of the crop is used directly, more than 85% is further processed into soybean meal and oil. Simply put soybeans and their many derivatives are the most traded agricultural commodity thus accounting for over 10% of the total value of global agricultural trade.

The main factors driving the global trade of soybean are population and income growth. This is further bolstered by policies implemented by governmental agencies and major agricultural importers and exporters, including domestic and boarder policies.

Soybean exports depend upon governmental requirements, global demand and policies of importers tasked with the job of sourcing a product in high demand. Currently two of the largest players in the market are the US and Brazil who account for more than 80% of global soybean exports. The remainder is in high demand from policy importers like China and other Asian countries as well as the European Union [EU].

Soybean prices have grown by more than twenty percent since the first quarter of 2016 due to high-demand irrespective of the price levels.

On the 10th of May 2016 the USDA released their World Agricultural Supply and Demand Estimates for soybean since then prices have continued to fluctuate, however we saw a significant increase in the market price by the 24th May 2016 showing that the markets had once again settled.

In early April 2016 major soybean producers like Brazil and Argentina recently experienced a bout of bad weather, which consequently hit soybean production hard resulting in serious global tension. On this basis the soybean outlook for 2016 seems to be heavily focussed on imports from China.

China’s soybean imports have continued to expand whilst other trade has slowed. Growth in soybean imports for 2016 have continued to remain firm, almost doubling since 2009. Chinese soybean imports have risen from 30.8mt in 2007 to an incredibly 81.4mt in 2015, growing on average by 13% per annum. This expansion accounted for over 90% of growth in global seaborne soybean trade during this period.

The growth in China’s soybean imports have been mostly driven by the increased demand for oilseed by-product.  Soybeans being crushed to produce soymeal is commonly used in cooking and foodstuffs. Soymeal production has been growing at a fast pace and its output is said to grow by a further 10% by the end of 2016 to 64.8mt.

The US and Brazil have been two of the largest suppliers of soybeans for many years yet Chinese imports from both these regions have increased since 2007.

The demand for soymeal and soy oil are expected to continue as an essential ingredient in feed formulation in replacement of vegetable oil given the significant cost savings. The Chinese diet remains heavily pork-based which could further boost the soybean demand short-term, however as recently as June 2016 there have been some concerns raised.

Agricultural economists have stated that the biggest factor affecting the US soybean market in 2016 is China. China represents the large majority of the US’s soybean exportation, covering around half of all US soybean export sales. If China’s soybean intake is slowing down as suggested this will have a ripple effect on the larger soybean marketplace.

We’re seeing China’s economic growth rate shrink causing exporters to worry that this slowing of economic growth could in fact equal a weaker demand for soybean, potentially resulting in fewer imports from places like the US.

Chris Hurt, an agricultural economist at Purdue University has agreed that this economic slowdown in China could have strong effects on US soybean exports. “Exchange rates look like they’re going to be difficult. There’s a higher probability that the Fed will start the process of increasing interest rates next year, and increasing interest rates would tend to push the dollar up.”

At the same time we are seeing Brazil, the US’s main soybean exportation competitor weaken its currency, meaning their soybean exports have become cheaper, and therefore more appealing to worldwide buyers of the product.

Brazil is fast becoming the world's best soybean exporter with a record monthly volume of 10.1 million tonnes in April of this year. In March 2016 that figure was up by 20% which is a 50% increase on 2015.

Hurt goes on to say that “The Brazilian real is down about 40% against the US dollar versus a year ago. China’s  yen, is also about 40% stronger relative to the real, but it’s about 4% weaker relative to the dollar. So, the dollar today buys 4% less in the US, but it's actually a little over 40% more in Brazil. These are not just headwinds, this is a hurricane blowing in the face of American soybean farmers.”

The price difference between the US and Brazil is relatively small, however Brazil’s oilseed tends to have the advantage because the protein content and quality are much higher than the US. As a result Brazil is ready to meet this season’s export target of 55.4 million tonnes of soybean, set by the Brazilian Trade Ministry. Brazil has already shipped more than 20 million tonnes of soybean thus far, already suprassing last year by 7 million tonnes during February and April, with another predicted 9 million tonnes expected to ship soon the target set by the Trade Ministry is forecasted to be met by mid-August 2016.

With this in mind China does have other buying options, more competition for struggling countries like the US. USDA figures show soybean production in 2013 to 2015 as 318.95 million metric tons, with 319.61 million metric tons projected for 2015 to 2016. This indicates that world production of soybeans is higher than ever before.

Longer-term since 2008/9 there has been a substantially stronger upward trend in world soybean production of around 6.6% annually. This strengthened by an increase in world soybean use of up to 5.9% per year, resulting in record world stocks and growth. This also means that we have seen a rather dramatic reduction in soybean price prospects.

Interestingly the USDA strongly projected that Chinese soybean imports will continue to be strong. The 2016 South American soybean production harvested in early to mid 2016 is not as large as it was in 2015, however it is still the second largest on record. US soybean production prospects in 2016 are expected to do only moderately less [3.800 billion] than the record US crop highs of 2014 [3.927 bb] and 2015 [3.929 bb] and finally that export demand of soybeans and soybean products will remain strong, which is partially due to slow soybean prices and low ocean freight rates.

In terms of prices there is a key question confronting the outlook for US corn and soybean prices long-term which has to take into account the fact that US corn and soybeans exist in the world grain and oilseed markets. This must first be understood to be able to understand their long-term equilibrium.

 

A review of world grain and oilseed supply and demand over the last forty years suggests to us that future corn and soybean prices could increase faster than ever before. It is therefore imperative that we look at grain yield against grain consumption to be able to determine if more land is needed for grain production or if land in grains can be moved elsewhere to meet the growing demand for the oilseeds themselves.

A decline in crop yields have been widely discussed, and it is still unclear whether the growth of aggregate world yields of grains and oilseeds is slowing or not. Ending stock-consumption ratios have increased for world oilseeds, but has this ratio reached a level that no longer needs to be built upon?

On the one hand changes in the world transportation infrastructure, a decline in world yield variability and the growth of corn production in the Southern Hemisphere have lowered the normal level of world grain stocks. On the other the market may not understand the risks of production and other supply chain factors, meaning the normal world grain ending stock-consumption ratio is now drastically effected.

 

Long-term corn and soybean prices have been affected by the decline in input prices. A lower input price means that everything else will remain the same, which could increase profitability and increase the supply or perhaps slow it down.

US agriculture is facing a current stress for the whole sector, which means it might have to adjust to a more ‘normal’ supply and demand situation.

In summary US soybean exports are projected to rise steadily over the next decade, reaching 1.4 million tons per annum in 2025 to 2026. They are expected to account for more than 10% of global soybean oil trade in 2016 to 2017, although it is thought they will lose market share as domestic use for biodiesel production expands.

Brazil’s annual soybean oil exports are projected to increase from 1.1 million tons to 1.3 million tons over this coming decade, and are expected to use more soybean oil for biodiesel production as well as expand upon soybean production into newer areas of cultivation.

Whilst we are aware that historical trends may not always continue into the future it is important to take them into consideration against our current outlook, or it may re-present itself.

For example in 2001 to 2005 the real price of corn and soybeans adjusted for inflation. Specifically, unless world grain consumption grows faster than world grain yields, or world consumption of oilseeds grows faster than the historical rate, it is reasonable to suggest that over time real corn and soybean prices will become real price levels.

Zurich is Growing

Zurich is expanding. Due to the success and growth of our core clientele we are expanding offices, speak to your asset manager to find out more.

 

Investor confidence in Core Commodities Surges – Zurich Private Capital

FRANKFURT – Global investment markets are ruled by uncertainty. A while back, US was considered the most fertile investment market but, now there is a stark change in attitude given the volatility of the US markets that has been lurking. Brazil stands to be the new emerging market for short term investment.

Although things are beginning to heat up on the investment scene here, experts feel the markets in Brazil are full of promise. After the US Federal Reserve’s quantitative easing taper policy was put in force and its apparent effects on the investment market surfaced, investor confidence shifted gear towards emerging markets.

Short term investment, being a risky affair is best handled by experts from Zurich Private Capital Group. This investment consulting company has adopted a fresh take on investment which is getting to understand the basic investment needs of an individual. Investment companies follow a standard investment protocol to keep their costs low.

What investors don’t know is that, this attitude poses serious risks to the health of their investment. The cookie cutter approach does not work with investments as they are highly market specific and need specific.

This is where the experience and expertise of Zurich Private Capital Group, a premium investment company in Europe, offers a different approach. Understanding investment needs is what the company specializes in and this means spending a good time understanding what the investor needs and wants from the market.  Understanding-your-needs page explains more.

The company uses a made to measure strategy that uses a practical approach to helping investors reach their investment objectives. Also, the company keeps investors involved by keeping them updated about the shifts in market and offering advice on how to manage and capitalize short term investment in offshore markets.

By extending trust and experience, the company builds a strong investment profile that is very well capable of handling turbulence in the investment market.

About Zurich Private Capital Group:

The company enjoys maintaining long term relations with industry influencers like traders, corporates, banks, and investment companies etc. to give its investors a good shot at maximizing their investment potential. The following video talks about how investors can start generating returns from their investment: Generating Returns

Media Contact
David Hutton
Frankfurt Light Tower Hanauer Landstr. 126 – 128

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News and Updates

Right now is a great opportunity to invest. If you are looking to move your current facilities for secure and increased performance on your capital, talk to us. As leaders in Capital Management in over 5 countries we clearly know how to grow your money beyond market conditions. One of our experienced Fund Managers depending on your capital requirement is at hand, to help you. Begin your journey with us.