(Bloomberg News) The financial units of Archer Daniels Midland Co., Continental Grain Co. and Cargill Inc., among the biggest names in agriculture, are pushing into the money management business as commodities markets are soaring.
ADM Investor Services Inc., a futures broker owned by ADM, is starting a fund that will invest client money with independent commodities trading advisors, according to a regulatory filing last month. Arlon Group LLC, Continental's investment management arm started in 2008, is accepting money for funds that make commodity, stock and private-equity investments tied to agriculture.
"It's just another way to leverage our knowledge in a slightly different business model," said Matthew Keegan, a portfolio manager at New York-based Arlon. "You start to collect fees and revenues based on managing assets rather than by crushing soybeans or transporting grains."
The food producers have traded in financial markets for decades to hedge against price swings and lift returns on excess cash. With prices for some agricultural products near record levels, their financial units are seeking more sources of income by marketing their expertise to third-party investors. Black River, a unit of Cargill that opened to outside money in 2004, now oversees $4.5 billion on behalf of external clients, said Michael Grover, head of investor relations.
Inflation Hedge
Investors are turning to commodities as a hedge against inflation as the U.S. struggles to rein in its budget deficit, and because they're liquid and don't move in lockstep with stocks and bonds. Cotton and cattle futures reached record highs this year, and hogs, coffee, cocoa and sugar reached multiyear highs. Corn is nearing a record.
The S&P GSCI Agriculture Index has gained more than two- thirds in the past year and rose to a record in March. Global food prices, as measured by a United Nations index of 55 food commodities, reached a record in February.
The gains have fueled the growth of managed futures, an investment strategy offered by commodity trading advisers, also known as CTAs, that gives investors access to a range of markets, including currencies, energy, metals, interest rates, stock indexes and traditional agricultural commodities. Managed futures funds took in net deposits of $39.1 billion in the year ended March 31, the most of any hedge-fund strategy, according to TrimTabs Investment Research Inc. and BarclayHedge.
'Investment Class'
"We have changed from a price-discovery market to an investment class," said Glenn Hollander, a partner at Hollander & Feuerhaken, a Chicago-based firm that trades in the cash markets for grains.