GO
Loading...

From Russia with Profits: Spy Pictures of Crops

Satellite surveillance has found a new home in business. Click here for Part 1 in the series -

During the Cold War, space-based satellite surveillance systems were the crown jewels of the US government’s spying capability, peering over the Iron Curtain to reveal the secrets of the Soviet Union.

Today, those crown jewels are in the hands of Wall Street analysts who are using them to get an edge in uncovering market-moving information.

The analysts are peering down at the parking lots of Wal-Mart and McDonald’s just as intensely as their Cold War predecessors once did on missile silos and tank battalions.

Take the case of a small Itasca, Illinois-based analytical firm Lanworth Inc., which this month has been scrutinizing satellite images of Russia, too—not to measure military hardware, but to measure wheat production.

The firm was launched in 2000 as a forestry mapping company, but has expanded well beyond those roots to become a commodities analysis firm that uses cutting-edge satellite technology to analyze crops around the world.

The company specializes in spotting "arbitrageable" differences between what the commodities markets think about the supply and demand of a certain crop and what the satellite images reveal about the reality.

“What satellites do is they give us global reach and they give us insights into areas planted in parts of the world that are very difficult to access and very different to understand,” said Nick Kouchoukos, the firm’s vice president of products.

“They give us a global view very early on in the season and let us know what plantings will be.”

Using infrared and microwave images of the entire planet taken twice a day, Lanworth can distinguish between each type of agricultural commodity—corn, soybeans, wheat and on and on—and discover the total number of acres of each planted overall. Infrared images capture the chlorophyll in the plants, and microwave images pick up the degree of moisture in the crops.

By monitoring the health of those acres over time, Lanworth’s analysts can spot any changes that can affect supply and demand in the commodities markets: diseases, floods, fires and other agricultural calamities.

Each June, the USDA issues a report detailing the planted area in corn, soybeans and wheat. In the commodities markets, those are hotly anticipated numbers, and they can cause futures prices to surge or decline by 30 to 50 cents or more.

Lanworth’s specialty is front-running those government reports so that its hedge fund and commodities clients have a reliable basis to predict what the government is going to reveal.

Less Corn=Higher Prices

For example, this year, the government revealed that there was much less corn in storage than it had thought—meaning supply was lower than expected, and prices should rise to make up for the lack of supply.

But Kouchoukos said that Lanworth’s satellite images had shown months earlier that the 2009 corn crop was smaller than most market analysts thought. “Our clients have been very well- prepared for the USDA release and the market moves that followed,” he says.

A self-propelled combine harvestes on a field near a village of Meshcherskoye, some 50 km south of Moscow.
Yuri Kadobnov | AFP | Getty Images
A self-propelled combine harvestes on a field near a village of Meshcherskoye, some 50 km south of Moscow.

Then, on August 6, one day after the Russian government announced it was shutting down grain exports in the wake of a devastating drought and series of fires in its agricultural areas, Lanworth was ready with a special report on the wheat crop there.

In what it said was a rough estimate, Lanworth told its clients that it guessed the Russians would only be able to produce 45.6 million tons of wheat this year—a number it pointed out was “considerably below USDA's (United States Department of Agriculture) current estimate of 50 million tons.”

And Lanworth cautioned its clients that the USDA estimate has “significant downside potential.”

Translation: Russia is significantly worse off than the US government thinks it is. And that suggests commodities speculators should be buying wheat futures.

For more details on these satellite images, the companies that provide them and the businesses that use them, watch Eamon Javers reports, "Spying for Profits," all day Tuesday, August 17 on CNBC from DigitalGlobe headquarters in Colorado.

Symbol
Price
 
Change
%Change
WMT
---
MCD
---

Featured