A journey through the Corn Belt

12 July, 2017

Introduction[1]

Attendance in May this year of the Koala Capital Sicav and Panda Agriculture & Water Fund team at the Berkshire Hathaway shareholders[2]‘ meeting became the perfect excuse to revisit the famous Corn Belt. As defined by a vice president of the United States, the “most productive agricultural civilization the world has ever seen.” And is that when you know the territory one realizes the magnificence of the area, everything there is huge and inordinate; Huge cereal fields as far as the eye can see, endless roads and an atmosphere impossible to find elsewhere.

Here practically all the soybean and maize of the United States, much of the wheat. It is also a key market in livestock. The Corn Belt is comprised of the states of Illinois, Chicago, Iowa, Des Moines, Minnesota, Nebraska, Lincoln, and Kansas and Indiana, where most agricultural fertilizer sales , Seed and state-of-the-art agricultural machinery, and only in Nebraska are the world’s four largest agricultural irrigation companies. Such is the agricultural power of the Corn Belt that, according to recent NASA calculations, in the summer the Corn Belt absorbs more CO2 than the Amazon itself.

Warren Buffett’s quiet character, as well as the high success rate of his investments, is not surprising. A great calm is breathed in Omaha all year round, except at the Berkshire Board of Directors weekend or in the world college baseball series held there each year before summer.

The city of Buffet is located in the west of the Corn Belt and in the calls Great plains or great plains of the center of the United States. It was an area inhabited by the Indians in a not so distant past and of which there is still much influence, Omaha is an Indian name. Nearby, we find for example cities like Sioux City or Kansas City. Or, near Denver (Colorado) we passed the town of Cheyenne. In these great plains have always grown a large part of the cattle that has fed the rest of the country. Chicago and Omaha have been the great cattle capitals of the twentieth century. Its two central markets, thanks to their connection with railroad lines, have set livestock prices for more than a century.

Not surprisingly, the futures and options markets that until today continue to fix the world price of cereals and other agricultural and livestock products were born in Chicago. In 1898 the current Chicago Mercantile Exchange (CME) was founded, then called the Chicago Butter & Egg Board. Fifty years earlier, the Chicago Board of Trade (CBOT), the oldest organized futures and options market in the world, had been founded.

Originally only futures contracts were negotiated on agricultural products, although with the years began to negotiate derivatives on gold and silver, energy or US Treasury bonds. Today, the vast majority of derivative contracts on any financial assets or raw materials are still being contracted in the Chicago markets which in 2007 were merged under the CME Group brand.

[1] This document has been prepared by Marc Garrigasait (@MarcGarrigasait), manager of Panda Agriculture & Water Fund, FI.

[2] See the document on the Berkshire Hathaway Board, Omaha Pilgrimage, by Luis Torras

Un viaje por el Corn Belt

Discharge