Managed Futures CTA Spotlight: Schindler’s Dairy Advantage Fund Milks Volatility

Managed futures continue to produce opportunities as commodity price volatility persists. In a thinly-traded marketplace such as the Class III Milk Futures contract there is plenty of volatility and plenty of risk. In America's Heartland, there is a man named Dan Schindler who looks to leverage that volatility to reduce risk in the US Dairy Industry at a trading firm called KDM Trading, where he is a Principle. The Company employs various hedging strategies, servicing dairy farmers seeking to hedge price fluctuations in the $48 billion a year US milk production market. According to Schindler, only 5%-10% of raw milk output produced by American farmers is hedged in the futures markets.

Separately, Mr. Schindler operates a Commodities Trading Advisor (CTA) at Schindler Capital Management, LLC. According to IBTRADE, Schindler's Dairy Advantage Fund has approximately $1.7 million of assets under management and has been in existence since 2006. The Dairy Advantage Fund is a speculative Fund that seeks profits by buying and selling futures contracts in the US dairy markets. The fund has a total return of 3647.93% as of August, 2011 (total return is defined as the total percentage return of an investment over a specified period, calculated by expressing the difference between the investment´s initial price and final price as a percentage of the initial price).

Not bad for a small fund manager from Fergus Falls, Minnesota. Despite the size of his fund, Schindler plays an ever-growing role in the US Dairy industry hedging risk. His network of farmers, manufacturers and traders puts him ahead of the herd in the volatile dairy markets. According to Schindler his Fund takes between 3-5 positions per year. He says many positions stay on for weeks or months.

And while Mr. Schindler is somewhat of a maverick in the US dairy markets, he does not seem to have lost the straight-shooting, pragmatic values of America's Midwest. Schindler realizes that his fund may have limitations in this small but growing marketplace. There comes a time where this fund may not scale within this marketplace...and that time may be soon, says Schindler. The Class III Milk Futures volume on Friday September 16, 2011 was 234 contracts for the September 2011 options on the Chicago Mercantile Exchange (200,000 lbs. of Class III milk/ 90 metric tons per contract).

Schindler says that the fund may be capped around the $5 million level based on the present average volume of the Milk contract, but with only 5-10% of the available market hedged there is plenty of room for growth, he added.

According to the Fund's description on the IBTRADE Web site, The Dairy Advantage Program primarily uses fundamental analysis as opposed to using technical analysis to formulate its trading decisions, with the majority of trades being in Class III milk futures. The Advisor reserves the right to trade in other agricultural and non-agricultural futures on occasion. Fundamental analysis is the consideration of factors external to the market of a particular instrument. For example, weather, imports/exports, and political events that affect the supply and demand of that particular instrument, in order to predict future prices of that instrument. Other factors include milk production statistics, dairy cow slaughter numbers, cost of feed and weather. In addition to USDA and NASS weekly and monthly reports, the Advisor has developed a network of individual dairy farmers across the country, commercial cheese operations and pit traders that help him come up with his bias on the market. Trade volume is expected to be quite low, since this is a trend-following approach. Positions are typically held several days, and even weeks to months are not uncommon. However, there may be times when trade volume increases for short periods, such as when positions are exited or reversed due to a sudden change in the trend.

(Source: IBTRADE Managed Investment Tracker)

About Dan Schindler

Daniel Scott Schindler was born in 1966 and is the sole principal, registered associated person, and managing member of the Advisor. He is responsible for all trading decisions and the general management of the firm. Mr. Schindler earned a Bachelor of Science degree in Applied Mathematics from the University of Wisconsin-Stout in 1991. He obtained his Series 3 license and was approved as an associated person on February 28, 2003 when he became affiliated with Valley Futures, Inc., a former registered introducing broker and former Member of NFA. In February 2004, Mr. Schindler left Valley Futures, Inc. and joined KDM Trading, Inc., a registered introducing broker and Member of NFA. Mr. Schindler is a full-time futures trader and broker at KDM Trading, Inc., holding the position of Vice President. Mr. Schindler has been a listed principal of KDM Trading, Inc. since December 16, 2003 and a registered associated person of KDM Trading, Inc. since February 4, 2004. Mr. Schindler has been a listed principal of the Advisor since May 7, 2009 and a registered associated person of the Advisor since June 30, 2009. In November 2006, Mr. Schindler established a branch office of KDM Trading, Inc. located in Wausau, Wisconsin. In August 2009, this branch was relocated to Fergus Falls, Minnesota. Mr. Schindler's responsibilities at KDM Trading, Inc. include handling both hedge and speculative customer accounts and writing weekly market commentary and trade recommendations.

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