Livestock, agriculture and inflation

CFA Level III Portfolio Management
#1

EOC #25 of the alternative investments chapter says that commodity classes such as livestock and agriculture exhibit negative correlation with unexpected inflation.

Why is that?

I guess it’s just basic economy but that’s not my strongest subject…

#2

Commodities tend to be positively associated with inflation if they are storable. In the case of livestock and agriculture these are non storable commodities and as such negatively correlated with inflation.

#3

Why does nonstorability imply returns that have a negative correlation with inflation?

#4

Hi guys,

Anyone could help further by any chance please?

Thanks!

#5

" F = Se^[(r+c–y)(T–t)]"

r = risk free, c = storage, y=convenience yield

“T – t is the time to maturity of the contracts”

so if you have to store the livestock / agricultural produce - your cost of carry model indicates a higher futures price.

hope this answers S2000’s question above.

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and myriam - what you are asking about - is kind of a regurgitate and throw back on teh exam kind of question - this seems to be coming straight from Exhibit 19 and the commentary soon after in the text …

#6

thanks for the extract from the curriculum. It’s true that they don’t give further explanation… They “prove” their statement through statistics rather.

#7

I’ve raised a simillar question before.

Just understand that it’s a statistical finding, and not much.