Myers: Agriculture is in the blood

October 31, 2012 07:00 PM
Trader Profile

Agriculture always has been a part of Chris Myers’ life. The founder of M6 Capital Management grew up on a 2,000-acre farm in Mississippi, where his family grew row crops and raised catfish, and his interest persisted when he attended Mississippi State University, a land-grant school, expecting to continue in the family business. “When I went to college, I had full intentions, like every other farmer’s kid, to be a farmer,” he remembers. 

After graduation, however, Myers changed his mind and went to work for Willard Sparks in Memphis. While at Sparks & Co., he traveled throughout North and South America looking at corn, soybeans, wheat and cotton for the agriculture guru. From there, he joined Sparks’ cattle feeding operation, Cattlco Inc., where he conducted hedging activity on corn, feeder cattle and fat cattle.

Through those years, as Myers puts it, “the endgame was that I wanted to be a [commodity trading advisor] (CTA).” So, in 2005 he launched his own CTA, M6 Capital Management (the “M” stands for Myers and the “6” is for Myers, his wife and their four children). In the seven years since its founding, M6, which manages  $28.6 million in customer assets, has a compound annual return of 9.69% with a maximum drawdown of 15.41%. The program is up 15.27% in 2012 through August.

Myers trades outrights, calendar spreads and options in the grain and livestock sectors using a discretionary, fundamental-based strategy. “On every trade there is an underlying, fundamental reason that I am in the trade, and every day I have to monitor those two, or three or four fundamental variables that back up my reason for being in,” he says. “If one of those variables changes, then I have to adjust accordingly.” 

Myers’ strategies helped him to trade this summer’s drought effectively. “Number one, I’m just outright long,” he says. “Number two, my much larger position was long options; I was long calls. I liked that trade better than being long futures because the volatility in the options was very cheap.” 

This allowed him to buy November bean calls with a volatility of 19 to 19.5, before implied volatility for soybeans (his top performing market) peaked at roughly 36 this summer. “Not only was I right directionally,” he says, “but, being long calls, I got an added bonus with the volatility going up.”

Myers also was able to exploit unusually high demand for bean meal this summer because of a poor South American crop just as the U.S. drought was kicking in. “You saw meal premiums go through the roof this summer,” he says. 

His average holding period, which has declined over the years,  is around seven days for outright futures, 12 to 15 days for spreads and 20 to 30 days for options.

Myers likes to follow the cash market to confirm his fundamental view. “You can see if you’re right or wrong on your fundamental assumptions in the cash market,” he says. Although he is a fundamentalist, he avoids trading off of weather forecasts. “Weather forecasts will change 15 times a day, and they will see-saw you to death,” he says. “Weather will trend in a certain direction until something substantial happens that changes that.” 

This summer, for instance, a springtime trend toward hot, dry weather continued building on itself throughout the summer. Deciding that it would take a significant weather event to dislodge that trend, Myers stayed with the long position, particularly in soybean options.

Another, more metaphorical, storm that M6 — and the industry in general — has had to weather over the past year is the downfall of MF Global. Although M6 lost only a small amount following the brokerage’s collapse, the debacle has changed the way that many of Myers’ prospective and current clients approach trading. “I’ve seen quite a few people that do not want to have all of their money tied into one [futures commission merchant] (FCM) right now,” he says.

The bankruptcy, he notes, upended two long-standing beliefs in the industry: That the exchanges would back FCMs that went under, and that customer money was sacred. “We learned that both of those beliefs were totally false,” he says.

Despite the ups and downs in the industry, the Memphis, Tenn.-based M6 has continued to produce solid returns. The business recently hired a grain and livestock researcher, and is in the process of moving to a larger location.

As someone who’s been immersed in the agriculture business since childhood, Myers says the industry has changed in the last 15 to 20 years, when exchanges were the primary, centralized locations for information. “Today, it’s far more about contacts that you have developed over time. We’ve got contacts in South America, Europe and China, and you’ve got to have an ongoing dialogue with those contacts,” Myers advises. “If [you don’t], you’ll just get run over, because things change so fast, and you’ve got to have the information flow.” 

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