Commodities Extend Rally

I have been writing on this blog for over a year that I feel that most investors have a severe underweight to commodities in general and agricultural commodities specifically. This is just one part of the "Endowment Style" of investing that I think is missing from most portfolios. We have aggressively positioned ourself in real assets because we feel that the declining dollar, underestimated inflation, and strong global growth will lead to a sustained rally in commodities. In fact in our annual newsletter we said our top idea for this year is agricultural commodities (corn, wheat, grains, soybean, sugar).

	3 Months	1 Year
Corn	32%	22%
Wheat	31%	100%
Sugar	42%	26%
Soybeans	30%	72%

With each major ag commodity up over 30% over the past three months we feel validated, but recently we have become concerned. One of our agricultural commodities positions is already up nearly 25% this year and has captured nearly two thirds of the return we projected for the full year. Up until now we had been buying pull-backs but we stopped doing that when the position breached the 20% mark.

This bring up an interesting question: what do you do when a long-term position rises swiftly towards the target price you set for a long period of time? Do you let it ride? Do you trim and rebalance? Do you sell it all at the target?

In this case we are monitoring the position closely, watching the underlying fundamentals and putting in strategic sells stops to protect our gains. I think it is safe to say that you can expect more comments about the ongoing agricultural commodity run-up in the near future.