Steve DeCook has traded grain and livestock markets from a fundamental perspective for five decades. His commodity trading advisor (CTA), Fundamental Futures Inc., had a successful 19-year run, averaging better than 15% per year with more than $100 million in assets under management, before closing shop in 2002. DeCook continued to trade for friends and family, but when he saw a huge new fundamental factor come into the agricultural markets in 2004, it got his competitive juices flowing and he launched his new CTA, Four Seasons Commodities Corp. His Hawkeye — he is based in Des Moines, Iowa — spread program would put on bear spreads in front of the long-only commodity index rolls. The huge size of these indexes, particularly the Goldman Sachs Commodity Index, made this a consistent winning trade and DeCook was one of the first to exploit it.
We talk to DeCook about running a CTA in two different eras, the evolution of the money flow trade and the fundamentals in the grain markets.
Futures Magazine: Steve, you have operated as a commodity trading advisor (CTA) in the 1980s when it was a relatively new asset class and in the 2000s after alternative investments were more established. Talk about the different eras.
Steve DeCook: Back then I traded heavier. We would trade one contract per $25,000, now we are trading one contract per $100,000. So I am trading smaller. Another thing, I am trading pretty much all spreads, which is less risky. [Though] the way spreads are moving around nowadays, that is not always true, but generally spreads are less volatile. We have volatility in the market now for reasons that [are unclear]. It is hard to find an explanation for a fundamentalist as to why things happen the way they do sometimes. So in general we are trading smaller and trading spreads to reduce our exposure to the market. Our returns are [smaller], also. We are aiming at 10%, whereas in the 1980s and 90s we were [targeting much more]; one year we made 80%.
FM: There is less risk tolerance by both retail and institutional investors. How did you adjust to this?
SD: One thing that is different now is back then you had the commercial crowd, you had the floor crowd and you had the general public. Well, the general public is gone and they have been replaced by the funds, an even greater influence than the general public ever was. Back then traders wanted to see where the general public was because we wanted to fade whatever they [were] doing. Now the funds are replacing them, but you don’t have the same attitude. The floor crowd is a smaller influence now.
FM: Aren’t you competing now against the floor crowd?
SD: They are watching the funds too, to see if they need to follow them.