Commodity alpha strategies suffer from surge in grain prices
Rising grain prices resulting from drought conditions in the US prompt unwinding of positions as banks work to add additional signals into alpha strategy algorithms
Market-neutral alpha strategies have been hit by the recent jump in grain prices to record highs following a spell of extremely dry weather in the US.
While the agricultural sector continues to be the commodity market's star performer, with the S&P GSCI Agriculture index up almost 15% in the year to date, the surge in grain prices – led by corn, whose futures curve has gone into backwardation – has meant that commodity alpha strategies that go short the front end of the curve and long the back
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