Conrad Leslie Enjoys Taking "World's Pulse"

By Allen Sykora

Conrad Leslie felt the monthly crop production statistics the U.S. Department of Agriculture (USDA) was putting out nearly 40 years ago did not reflect crop size in a timely, accurate fashion. So, he began doing his own research. His work has grown to the point where he currently surveys some 1,200 elevator managers around the country, and his predictions four times during the growing season have become one of the most closely watched and widely respected private forecasts in the business.

A number of other companies are now putting out private grain estimates as well. Leslie welcomes the competition, however, explaining that more data contribute to improved decisions regarding the price of grains.

While Leslie does some modest trading in a wide range of futures markets, he won't take a position in the grains based on his report ahead of its release, even though the data is considered accurate enough to temporarily influence grain markets. That, he said, would be a conflict of interest that would influence the accuracy of the estimates and would jeopardize the credibility of the reports.

Leslie continues to put out his report and track markets well past the age when most Americans retire to the quiet life. He enjoys the stimulation of arriving in his office every morning at 6:30 a.m. and taking "the world's financial pulse," evaluating news events and their impact on global markets and expressing through his morning newsletter the possible impact on global futures values.

Leslie is the president of The Leslie Analytical Organization, based in Chicago. His crop production forecasts are distributed around the world by the major news wires that cover the grain markets.

He initially began his research years ago from Columbus, Ohio, when he was affiliated with Merrill Lynch.

"When I was first in the business, it became apparent that the USDA was conservative in its monthly changes in production estimates of soybeans, corn and wheat," explained Leslie. "It seemed to me as though they would move about two-thirds in the direction indicated by the changing weather and crop developments, and then wait for the next month to move the additional distance. In addition, USDA released its reports on the 10th of the month for conditions as of the first of the month. So there was a vacuum of knowledge in agribusiness during that 10-day period. Such does not contribute to efficient market decisions.

"There was a need for quicker result and there was a need to move the full step in the direction of the (overall crop) damage or improvement. Therefore, we began to call agronomists in each state and ask them what they felt the conditions of the crops were as of the first of the month. From that, I would issue a letter to subscribers as to what soybean, corn and wheat production figures could be."

Leslie later moved to Chicago at the invitation of Clarence Galvin, described by Leslie as the "dean of crop forecasters" in the years following World War II. Leslie worked for several years with Galvin, who was with F.I. DuPont & Co.

When Galvin retired, Leslie was invited to join Bache & Co. He then began contacting elevator managers around the country, inviting them to join a survey group which would issue more timely estimates. In exchange for their opinions, crop reporters would receive the state-by-state summary and some comments about current market conditions.

Leslie considers the information from elevator managers to be extremely reliable.

"Elevator managers are unusually sensitive to changes in crop conditions because, No. 1, they usually have to store the wheat crop, then judge how much space will be required for the soybean crop and the corn crop," he explained. "They are also sensitive to crop developments because they need to know how much money they're going to have to borrow from the bank for their inventory. And third, they need to know how much space will be available to rent out to their crop-producing farmers."

By the time the November to January reports are issued, the USDA estimates (which rely on farmers) and Leslie's estimates (based on surveys of elevator managers) tend to be relatively close together.

Leslie recognizes the significance of his data to the grain markets and its ability to move prices. He recalls that one of his messengers involved in mailing the reports was once offered $1,000 for a copy an hour ahead of the scheduled release. As a result, Leslie has taken steps to protect the credibility of the report prior to its release.

While ADM Investor Services has a contract with him to distribute his daily and monthly reports to some 500 offices around the world, Leslie noted that not even ADM knows the contents ahead of the release time.

"Our work is entirely a public-relations project and hopefully a contributor to agribusiness," he explained. "No market opinion is presented to my readers during the day prior to the next day's 7:30 a.m. CDT release. At times, until the early weather news is evaluated, the final figures may not even be determined until an hour before the report."

Leslie estimated that perhaps 15 brokerage firms now put out private crop estimates, although he believes only a couple actually survey sources such as farmers or elevators. Most tend to rely on the weekly state crop bulletins issued on Mondays, plugging the information into computers to determine the anticipated changes in crop production.

"Now, it is much more competitive, but we're pleased to see that," said Leslie of the increased number of private forecasts. "The more lights that shine on an objective, the clearer it can be seen by all, and more stable prices result. Today, agribusiness is not entirely dependent on the Department of Agriculture, although it does of course rate highly because of its independence."

For some 20 years, Leslie and his wife Cynthia reviewed post cards at their home and tabulated the results with a simple adding machine. Now, however, the data are entered into a computer, which produces the results more quickly.

Leslie is now in his mid-70s, but plans to continue analyzing the markets as long as "readers are interested in my interpretations and evaluations." In addition to his monthly report, he reads the information available on four major news wires before issuing his daily commentary. As he works, he is surrounded by a dozen computer monitors in order to observe price reactions to news in all of the major markets around the globe.

"I don't have a lot of retirement-type hobbies," he said. "I enjoy playing bridge and I like to travel. Beyond that, it's more stimulating and interesting to note the world's heartbeat each morning through these news services."

When Leslie does trade, he will enter markets besides grains--"most anything that is demonstrating momentum." At the time of this interview, his tendency was to trade five-minute S&P charts. "If something seems to be attractive from a chart standpoint or a headline standpoint, it may spark my interest," he said. "But it's more of a hobby of challenge rather than investment or speculation."

Despite his work researching fundamentals such as supply and demand, Leslie actually relies more heavily on technicals. He puts the split at 75%-25%.

"It now seems to me that the technicals are better able to identify the psychology of the marketplace," he said. "They serve as thermometers of the enthusiasm from the bulls and the bears. There are such large pools of money moving from one market to the next. The technicals are the only measurement one really has to identify the changing strength or weakness in world prices."

But fundamentals are also critical, he explained.

"They (technicals) can tell you where you've come from by various patterns that repeat over the years, especially when you apply them to weekly or daily charts. But they can't forecast tomorrow's news, and that's still paramount in the development of technical patterns.

"One should not blind himself to the fact that an unexpected earnings report, a change in interest rates, a drought, earthquake, rain conditions, an action by terrorists, or a war can quickly change the present direction of the charts."

Leslie gravitated toward the markets after receiving a degree in banking and finance from Miami University in Oxford, Ohio. He was a pilot in the Air Force during World War II, earning the Distinguished Flying Cross and the Air Medal with three oak leaf clusters. He had originally enrolled at Miami University in the pre-medicine program, but by the time he completed his military service, felt he was too old to stay on the long schooling track needed to become a doctor.

He began his career as a stock broker with Merrill Lynch, graduating with its eighth class on Wall Street in 1949.

Back then, stock trading was muted when compared to today.

The Dow Jones Industrial Average was around the 210 level and moved by only a couple of points a day with volume around 1 million to 2 million shares. By contrast, this summer the index climbed above 11,000 and daily trading volume is normally between 700 million and 1 billion shares.

Leslie eventually turned to the "more stimulating" grain futures markets, although over the years he didn't limit himself to the grains. In the late 1960s, he was among those who recommended that Congress permit Americans to own gold, as well as establish futures markets for gold and currencies. He also was among those who first pushed for the establishment of a stock options market in Chicago.

In 1970, he wrote the book "Conrad Leslie's Guide for Successful Speculating," through which he identified the rules for trading that he had learned from Merrill Lynch, Bache and Thomson McKinnon brokers.

Leslie has seen many changes in the markets over the years. One which he believes may be occurring too quickly is the embracement of electronic trading. He recently wrote an essay suggesting that the potential for abuse via electronic exchanges is "tremendous" compared to the "fishbowl" open-outcry financial exchanges.

"Also, there should be respect for the probability of electrical failures and computer breakdowns," he said. "Such can invite major legal problems."

"Electronic markets are opening a possible Pandora's box to possible deceit and fraud to a degree we haven't experienced during the past 50 years of growth in capitalism.

"Electronic markets supposedly lower fixed costs. However, they may increase costs to the public because of the reduction in centralized trading liquidity and fewer and wider bids and asks in the decks.

"Electronic exchanges know no national boundaries. Later, you may hear that traders or hackers from anywhere in the world created account-record turmoil or entered 'window-dressing' phony market orders or illegally transferred funds (kiting). The reduced visibility of the activities via electronic exchanges would seem to encourage more 'Russian-style money laundering.' Unknown hackers recently moved the position of a British military satellite. Chinese hackers have placed messages on Taiwan government computers, and Taiwan hackers have retaliated by placing messages on Chinese government Internet locations.

"Are our supervisory agencies able today to fully judge and determine the quality of prescription drugs or the accuracy of herbal medicine health claims on 'the net?' How about the credibility of 'net' auctions and sales transactions? There were 7,752 Internet fraud reports filed last year. How about the spread of violence-promoting programs and pornography, or the accuracy of some of the stock information being circulated? The FBI recently discovered a 13-year-old 'stock adviser.'

"How are our resource-limited government agencies going to supervise the margin leverages and worldwide trading involved in buying and selling stocks and options via the electronic exchanges?

"In my opinion, in today's financial world, there is a proper place for both publicly owned `open outcry financial exchanges' and for `privately owned electronic financial exchanges.' But let's not dilute the basic strength of the marketplace and let's keep them proper. Is a congressional and public hearing in order?"

In Leslie's reports, he likes to pass along tidbits and thoughts about topics other than markets that he thinks might be beneficial to others. In that spirit, he concluded this interview with three observations about life that he has found to be of value.

"No. 1, regarding money, each of us has a choice. We can work for money, or we can make money work for us," he said.

"No. 2, education is knowledge, knowledge is wisdom, and wisdom is money. And money is economic freedom. In America, each of us has the opportunity to acquire as much education, knowledge, wisdom, money and economic freedom as we desire.

"No. 3, because life consists of a constant series of experiences and the collection of memories, each of us has the power to be as happy or as unhappy as we desire. We can create great experiences and collect great memories--or we can create bad experiences and bad memories."

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