Ag Markets January 25, 2021

Note: This is the final ‘Ag Markets This Week’ post - if you’d like to continue receiving this weekly write-up going forward, ping us for a trial: insight@peaktradingresearch.com.

Big Picture Ag Price Drivers:

• Hedge funds remain extended-long agriculture futures, ~+900k contracts net long today.

• Seasonals are mixed this week, then turn firmly negative in February and March.

• Neutral macro: Inflation up and stocks rallying vs crude softer and USD firm.

• Mix fundamentals: Export sales, cash markets, and curve inverses remain firm (bullish ags) vs SA weather is improved as Brazil ramps up harvest (bearish ags).

Macro:

The macroeconomic environment is a neutral trading input for agriculture futures today. Inflation expectations remain firm at 8yr highs ~2.20% (good for ags), but energy markets are softer and the U.S. dollar is gaining versus CNY, RUB, and BRL (bad for ags).

It's a big week for Q4 corporate earnings and the data calendar includes an FOMC meeting and U.S. GDP, both big U.S. dollar drivers:

• Wednesday: FOMC rate decision, Fed Chair Powell Press Conference

• Thursday: U.S. Q4 GDP (exp. +4.2%), jobless claims data

Fund Positioning:

Funds still hold massive long positions across the agriculture complex, even after some modest position trimming through the end of last week. The most 'expensive & overbought' markets across the ag complex are now spring wheat, kansas wheat, and corn.

Seasonals:

This week marks a big seasonal inflection point for agriculture futures. Early-January #reflation flows are now behind us and seasonals are firmly negative in February and March.

Most Relevant Question This Week:

Funds trimmed long positions last week - what catalysts could make funds cover more?

1.) U.S. dollar strength. The dollar is gaining against important ag-correlated currencies like BRL, RUB, and CNY. Watch how the dollar moves this week, especially around the FOMC & U.S. GDP. The dollar matters - chart of the week below.

2.) Seasonal traction. Seasonals turn sharply negative in February and March. Overbought markets like kansas wheat, sugar no. 11, and arabica coffee look most vulnerable...all of these markets look 'expensive and overbought' today.

3.) Changes to the bullish fundamental narrative. Better weather and the Brazil harvest countdown are negative drivers. When will end-users step in to buy? How will cash respond to the lower board?

Final Chart of the Week: A weak U.S. dollar has been a massive positive tailwind for agriculture commodity prices over the past nine months. This week brings two big U.S. dollar catalysts: FOMC comments Wednesday and U.S. GDP data Thursday.

Ag Markets January 18, 2021

Ag Price Drivers This Week:

• Hedge funds are record-long agriculture futures, with record length in corn.

• Fundamental tailwinds: SA weather remains mixed, China has been buying despite higher prices, Russia's wheat export tax begins March 1st, last week's tight WASDE corn stocks.

• Macro clouds are looming, including a stronger U.S. dollar and softer energy markets.

Macro:

The macroeconomic environment has lost some steam and is a neutral trading input for agriculture futures coming into this week. Inflation expectations remain firm (good for ags), but the U.S. dollar jumped to three-week highs, and energy markets are softer (bad for ags).

This is a big week for U.S. politics and central banks; focus is on Biden's inauguration, potential violence in D.C. & state capitols, Biden's $1.9T stimulus bill, new executive orders, and Trump's (delayed?) impeachment:

• Today: Martin Luther King Jr. Day, U.S. markets closed

• Tuesday: Yellen testifies before the Senate Banking Committee (watch USD)

• Wednesday: Biden inauguration at ~noon EST, Brazil & Canada rate policy decisions

• Thursday: ECB & BOJ policy decisions (watch USD), U.S. jobless claims, Philly Fed

• Friday: U.S. home sales

Fund Positioning:

Funds are record long agriculture futures - roughly +1.12 million contracts across the ag complex - including a record net long position in corn and across the combined U.S. grain markets. Funds have rotated long bets out of oilseeds and into grains over the past month. The most 'expensive & overbought' markets across the ag complex are now corn, spring wheat, and kansas wheat.

Seasonals:

Price seasonals are positive this week across the ag complex..

Questions This Week:

What are the catalysts that could drive funds to liquidate their record length?

1.) More U.S. dollar strength. The U.S. dollar's downtrend has been a huge positive tailwind for ag futures over the past nine months. If the U.S. dollar begins to re-strengthen, it will drag ags lower. This is a BIG macro week and macro-ag correlations are still running hot (chart of the week below). Watch USD.

2.) Some change in the bullish fundamental narrative. With the Jan WASDE now behind us, watch cash markets, China buying, and signs of rationing. It's still too early for Brazil harvest pressure.

3.) #Reflation trades losing momentum. Last week's jobless claim numbers were higher and retail sales were lower...both pointing to a slower economic recovery and fewer growth-driven price pressures. Reflation trading is an early-January phenomenon...the flood of money into commodity inflation hedges will slow over the coming days. Watch gold, copper, and bitcoin...all three are setting back.

When do price seasonals turn bearish?

Seasonals start to turn after this week. You should have negative February seasonals on your radar. Seasonals will be a big threat to hedge fund positioning next month.

Chart of the Week: This is a BIG week for macro trading inputs, focused around Biden’s inauguration on Wednesday and new executive orders. Correlations between macro inputs and grain & oilseed markets are firmly positive - watch the U.S. dollar closely this week, esp versus BRL and CNY.

Note: We’ll discontinue this weekly ‘Ag Markets This Week’ post in February - if you’d likely to continue receiving this write-up going forward, ping us: insight@peaktradingresearch.com.

Ag Markets January 11, 2021

Hedge funds are record-long agriculture futures heading into Tuesday's big January WASDE report.

These fund traders are confidently long ags on a combination of supportive fundamental (strong cash markets) and non-fundamental (#reflation flows) price drivers.

Bearish WASDE data (e.g., higher stock estimates) and/or a stronger USD are the biggest threats to funds' massive long positions this week.

Macro:

The macro environment is downgraded to a neutral trading input for agriculture futures today due to the recent strength in the U.S. dollar. The Euro, gold, and bitcoin are all getting pressured lower today.

This week investors will focus on U.S. political volatility, potential impeachment proceedings, and rising Covid cases. Biden's inauguration is on January 20th, next Wednesday.

This week we see U.S. inflation data as 'live' inflation metrics are testing 2.5-year highs:

• Wednesday: CPI Inflation data (exp. +0.4% m/m)

• Thursday: U.S. jobless claims, Fed Chair Powell speaks

• Friday: U.S. Retail Sales, PPI Inflation data

Fund Positioning:

Friday's COT positioning report showed a new record net long position for non-commercial traders at +1,067,077 contracts. Funds are record long corn and record long across the grain markets.

This record-long fund positioning will be a bearish trading input at some point, but today strong cash markets, bullish January seasonals, and investor #reflation flows are keeping funds confidently long ag futures.

Seasonals:

Price seasonals are broadly positive in January before turning more bearish in February.

Questions This Week:

With funds record long, what could be the catalyst that drives funds to liquidate?

The most likely catalyst for fund selling this week is around the WASDE, either on better yields, higher stock estimates, or simply a 'sell the fact' reaction after Tuesday's data comes out. Funds know that the window is closing on SA weather risks - the calendar is not their friend.

When do seasonals turn bearish? When do investors stop focusing on reflation trades?

Seasonals start to turn after next week. February seasonals are firmly negative *and* fund selling started in early February 2011...the closest analogue flow period to today.

Could the macro environment drive funds to liquidate?

Yes, especially after we get through the big WASDE report. Watch the U.S. dollar and watch CPI / PPI inflation data this week.

Chart of the Week: Tuesday brings the big January USDA WASDE agriculture report. Hedge funds are going into the report record-long agriculture futures, emboldened by strong cash markets and January #reflation flows.

For a trial of our industry-leading quantitative agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets January 4, 2021

Agriculture markets have gotten a big boost from the positive macroeconomic environment and investors will remain bullish on reflation trades over the coming weeks - a supportive driver for commodities broadly in early January.

Argentina's suspension of new corn exports, strong cash markets, and continued uncertainty around South American weather/production has provided additional support for grain and oilseed markets. Calendar curve inverses are higher and hedge fund positioning is at record levels coming into this week.

Macro:

The macro environment is a strong positive tailwind for agriculture futures today, driven by higher inflation expectations, a weak U.S. dollar, record equity markets, and bullish China sentiment. Correlations are strongly positive between macro indices and ag futures and should remain that way until Feb. The macro matters today.

January is a month when investors focus on 'big picture' investment themes and the potential for higher inflation from dovish Fed policies (a January trading theme since 2008). There will be plenty of #reflation trade headlines his month - a positive driver for ags, metals, and energy commodity markets.

This is a big macro week - with Georgia elections on Tuesday and an NFP report on Friday:

• Monday: OPEC+ meeting on production increases

• Tuesday: Georgia run-off elections to decide which party controls the U.S. Senate

• Wednesday: FOMC meeting minutes, U.S. ADP, Congress certifies Biden's win

• Thursday: U.S. jobless claims

• Friday: U.S. Nonfarm payrolls (exp. +50k jobs, unemployment rate 6.8%)

Fund Positioning:

The CFTC's holiday-delayed COT report later today will likely show a record net long hedge fund position across the ag complex (measured in contracts). Today funds are extended longest in kansas wheat, soybean meal, and corn.

Seasonals:

Price seasonals are positive during the first weeks of January as investors focus on reflation trades and South American weather markets. Peak's seasonal heat maps are a sea of green (chart of the week below).

Watch this week:

Non-fundamentals: #Reflation trades are the focus in January, which boosts all commodities. Hedge funds are record long but the positive macro environment and bullish January seasonals suggest now is *not* the time to take a contrarian play on fund positioning. Watch the path of the U.S. dollar (esp vs CNY & BRL), crude oil (OPEC+ today), and equities...all are supporting ags today.

Fundamentals: The Argentine port strike is over, which should remove some pressure from oilseed markets...but new corn export restrictions are pressuring grains higher (following Russia's similar move on wheat just three weeks ago). Argentine forecasts are dry and Brazil moisture levels are still playing catch-up. We're still in SA weather markets until harvest ramps up in February. Next Tuesday is the big Jan WASDE report.

Chart of the Week: #Reflation trades are popular in January. Price seasonals across agriculture, energy, and metals commodity markets reflect these money flows - futures prices tend to rise during the first weeks of the calendar year. Peak’s seasonal heat maps are a sea of green in agriculture markets over the coming weeks.

For a trial of our industry-leading quantitative commodity research, reach out to us: insight@peaktradingresearch.com.

Ag Markets December 21, 2020

Agriculture markets are riding upward momentum from last week's pro-inflation Fed policy statement, U.S. dollar weakness, Argentine soy workers strike, and South American weather uncertainty.

The 'macro matters' for agriculture futures in December and today the macro environment is a positive tailwind keeping hedge funds confidently long agriculture futures into calendar year-end.

Macro:

Last week the Fed announced it will continue QE purchases 'until substantial further progress has been made' in inflation and employment... a green light for higher inflation going forward, similar to the Fed's 'average inflation target' announcement from August.

This week's macro calendar is relatively light:

• Monday: U.S. govt Covid stimulus bill vote, Tesla added to the S&P 500

• Tuesday: U.S. consumer confidence, U.S. home sales

• Wednesday: Jobless claims (climbing lately, +875k exp this week)

• Thursday: U.S. Federal offices closed, CME early close

• Friday: Christmas holiday

Fund Positioning:

Hedge funds are the longest they've ever been heading into a new calendar year (measured in contracts) and funds seem content to hold this massive length given the positive macro environment and tight global balance sheets.

Incredibly, 20 out of the 21 ag markets look 'expensive and overbought' versus data from the past 24 months (london cocoa is the only exception). Today funds are extended longest in kansas wheat, soybean meal, and canola seed. Chart of the week below.

Seasonals:

Price seasonals are mixed through the end of December before turning more broadly positive in January 2021. Robusta coffee futures have risen 11 out of the past 12 years for the 19 sessions starting Thursday.

Watch this week:

Fundamentals: Cumulative precipitation totals are catching up across Brazil and Argentina, but are still low enough to keep weather risk premiums across the soy complex (high futures, strong inverses). Strong export sales reports, the Argentine strikes (to be resolved this week?), and upcoming Russia taxes (now including soybeans) are additional bullish tailwinds.

Non-fundamentals: The macroeconomic environment matters in December and today agriculture traders see a lot of green lights: weak USD, higher inflation, strong energy & metals markets, strong equity markets, low volatility, and extremely easy financial conditions. There isn't much on the calendar this week - or through the end of the year - watch the path of the U.S. dollar (rebounding this morning) and watch price action in energy (crude down this morning).

Note: This is our final 'Ag Markets This Week' summary of 2020. Thank you for reading this year and enjoy a safe and happy holiday season!

Chart of the Week: 20 out of 21 agriculture markets look ‘expensive & overbought’ today…an incredible change versus six months ago, when most markets were ‘cheap & oversold’. Strong U.S. exports, South American weather uncertainty, and the Fed’s pro-inflation policy stance are keeping hedge funds confidently LONG into year-end.

Ag Markets December 14, 2020

The last full trading week of 2020 has plenty of macroeconomic data to chew through - including a Fed meeting on Wednesday - as agriculture futures are adjusting to upcoming Russian export taxes (bullish wheat) and mixed South American forecasts.

Macro:

The macroeconomic environment is a neutral trading input for agriculture futures coming into this week; crude oil, BRL, and CNY are up (good for ags), other risk indices are more mixed. The dollar is trading sideways ahead of Wednesday's big Fed policy decision.

On the macro calendar this week:

• Monday: U.S. $900B Covid stimulus negotiations, U.S. electoral college certifies Biden

• Tuesday: Chinese industrial production and retail sales data; U.S. empire manufacturing

• Wednesday: U.S. FOMC rate decision (watch USD), U.S. retail sales

• Thursday: BOE rate decision (watch GBP)

• Friday: BOJ rate decision (watch JPY) and Russia rate decision (watch RUB)

Fund Positioning:

Friday's COT positioning report showed surprise selling in bean oil and long liquidation from sugar no. 11. Big picture: Although funds have trimmed length over the past six weeks, aggregate positioning across the ag complex remains at nosebleed levels (chart of the week below). Today funds are extended longest in kansas wheat, canola seed, and corn, based on 2-year net positioning z-scores.

Seasonals:

Price seasonals are mixed over the coming weeks before turning more broadly positive into 2021.

Watch this week:

Fundamentals: Last week's WASDE report was a non-event, more changes will be made in January. Northern Argentina saw rains this weekend but cumulative precipitation totals are still below average across Brazil and forecasts are spotty as we're getting deeper into key growing weeks. Russia's pending export taxes are keeping wheat bid; kansas wheat is now the most overbought market across the ag complex (non-commercial traders +33k long).

Non-fundamentals: The macroeconomic environment matters in December. This is the time of year when correlations are highest between macro indices and ag futures. Today ag correlations are highest with crude oil. This week watch CNY around Chinese data Tuesday and watch USD around the big central bank meetings later in the week. Additional Fed stimulus Wednesday = USD down = Ags up.

Chart of the Week: Hedge fund positioning across the agriculture complex is holding steady at historic levels, with dry South American weather and new Russian export taxes keeping funds confidently long. This is the longest that hedge funds have ever been entering a new calendar year.

For a trial of our industry-leading quantitative agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets December 7, 2020

South American weather and the positive macroeconomic environment are the main price drivers for agriculture futures ahead of Thursday's December WASDE report.

Macro:

Agriculture futures have seen a 'macro wish list' over the past week: Rising inflation expectations, a weaker U.S. dollar, strong BRL, firm energy & metals commodity markets, and new stock market highs.

Last week's setback across the ag complex was due to wetter SA weather spooking massive fund long positions, *not* a worsening macro environment. Macro investors are optimistic about this week's vaccine roll-outs and prospects for U.S. govt Covid stimulus. Record Covid-19 infections and new lockdowns aren't (for now) derailing the macro mood.

This is an important FX week, with three big central bank decisions:

• Monday: Brexit discussions continue this week, EU stimulus and budget negotiations

• Wednesday: Brazil rate decision (watch BRL), Canada rate decision (watch CAD)

• Thursday: ECB rate decision (watch EUR), U.S. CPI Inflation, USDA WASDE report

• Friday: U.S. PPI Inflation

Fund Positioning:

Friday's COT positioning report showed the second-largest week of hedge fund selling since April. Big picture: hedge funds remain extended long across the ag complex - esp in markets like canola seeds, kansas wheat, corn, and soybean meal. This fund positioning is a bearish trading input looking forward... the bulls need to be fed.

Seasonals:

Price seasonals are mixed over the coming weeks before turning more broadly positive into the new calendar year. Price patterns worth noting this week:

• Live cattle futures have risen 16 out of 16 years for the 14 sessions starting Wednesday (chart of the week below).

• Feeder cattle futures have risen 11 out of 12 years for the 17 sessions starting Wednesday.

Watch this week:

Fundamentals: Central and southern Brazil is getting moisture but Argentina remains dry. With fund positioning at nosebleed levels, better SA weather will continue to drive sharp pullbacks. Thursday's WASDE corn and soybean export numbers are the focus through the end of the week.

Non-fundamentals: The macroeconomic environment matters in December. This is the month when correlations are highest between macro indices and agriculture futures. Watch the path of the U.S. dollar versus BRL, CAD, and EUR, and watch this week's CPI and PPI inflation data. Inflation breakevens are at 18-month highs today, a bullish tailwind for commodities broadly.

Chart of the Week: Live Cattle has a compelling price pattern starting this week: April live cattle futures have risen 16 out of 16 years for the 14 sessions starting Wednesday. It's rare to see 100% hit rate trades lasting 12+ years.

For a trial of our industry-leading quantitative agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets November 30, 2020

South American weather maps and the macroeconomic environment are the main price drivers for agriculture futures this week. December is a crucial month for Brazil and Argentina production prospects and also the month when correlations are the strongest between macro inputs and agriculture futures.

Macro:

Markets traded with a firm risk-on tone last week. The combination of strong energy markets, firmer inflation expectations, and a weak U.S. dollar is a positive tailwind for ags today.

The macro calendar includes a 2-day OPEC meeting starting today and NFP job numbers on Friday:

• Monday: OPEC meetings begin (watch crude oil)

• Tuesday: US ISM manufacturing, Fed Chair Powell testifies before the Senate (watch USD)

• Wednesday: U.S. ADP jobs (private survey version of NFP)

• Thursday: U.S. jobless claims

• Friday: U.S. Nonfarm payrolls, exp. +500k new jobs, unemployment rate ~6.8% (watch USD)

Fund Positioning:

The CFTC will publish updated COT positioning data from Nov 24th later today. Hedge fund flows have been ~flat in the past two COT reports as funds have held record length across the ag complex. Kansas wheat, canola seed and soybean meal are the most overbought ag markets today...all three of which have negative price seasonals over the coming weeks.

Seasonals:

Price seasonals are mixed: Positive for grains, palm oil, matif rapeseed, and white sugar but negative for meats, kansas wheat, meal, canola seed, coffee, cocoa, and oats.

Price patterns worth noting this week:

• Lean hog futures have fallen 16 out of 18 years the 11 sessions starting Tuesday.

• Palm oil futures have risen 13 out of 15 years the 20 sessions starting Thursday.

Watch this week:

Fundamentals: South American weather matters in December. Southern Brazil and Northern Argentina are getting rains, but it's hot and dry elsewhere. Production uncertainty is keeping prices high, curves inverted, and hedge funds confidently long across the soy complex. Also watch China buying and U.S. farmer selling.

Non-fundamentals: After two quiet weeks, the macro matters again this week. Agriculture futures tend to get pushed around by macro flows into calendar year end. Watch how crude oil and the U.S. dollar react to this week's OPEC decisions and NFP data. Today's COT report will be a reminder that funds are extremely long across the ag complex...the bulls need to be fed.

Chart of the Week: The U.S. dollar has dropped -2.4% in November and today sits at the lowest level since April 2018. This U.S. dollar weakness has been a strong positive tailwind for agriculture futures. USD down = Ags up.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets November 23, 2020

Trader focus is on fundamental trading inputs coming into this holiday-shortened week. The economic data calendar is light and macro indices aren't sending strong directional signals today.

Macro:

Markets have traded with a mild risk-on tone over the past week, boosted by strong China sentiment (Chinese yuan at 2yr highs vs USD) and firm energy markets.

The macro calendar is light this week ahead of the U.S. Thanksgiving holiday:

• Monday: Michigan and Pennsylvania certify Biden

• Tuesday: U.S. Consumer confidence, MN, NC, OH certify Biden

• Wednesday: Fed meeting minutes, U.S. jobless claims (watch the U.S. dollar)

• Thursday: U.S. Thanksgiving, markets closed

• Friday: Black Friday shopping, CME early close

Fund Positioning:

Friday's COT positioning report showed fund selling in grains and surprise fund selling in soybeans offset by fund buying in sugar, coffee, cocoa, bean oil, and cattle. Funds remain extended long:

• Non-comm traders are ~+927k contracts long in aggregate this morning, just below the +997k record from the October 27th COT report

• Non-comm traders have a record small gross short leg across the soy complex (chart of the week below)

• Kansas wheat, canola seed and soybean meal are the most overbought (largest z-scores)

Seasonals:

Price seasonals are mixed over the coming weeks: Positive for grains, cotton, matif rapeseed, and white sugar, negative for meats, canola seed, robusta coffee, cocoa, and oats. Peak’s full seasonal heat maps are sent to clients every Sunday evening.

Watch this week:

After a manic start to the month of November, the macro environment is more calm this week. Watch how the U.S. dollar reacts to Wednesday's Fed meeting minutes and watch if crude oil can break to new post-Covid highs this week.

Fundamentals matter this week, esp now that we're getting deeper into South American weather markets. Focus is on: Brazil precipitation (getting rains, but still dry), upcoming December deliveries, farmer selling, and China import business.

Chart of the Week: Tight global balance sheets, strong China imports, and dry South American weather means speculators don't want to be short soy futures today. Non-commercial traders have record small short bets across the soy complex today (soybeans -41k contracts short, meal -15k, bean oil -17k = -73k contracts total).

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets November 16, 2020

This week is relatively light on trading inputs following last week's big WASDE report moves and the U.S. election volatility the week prior. Trading focus is on fundamental inputs - South American weather, U.S. farmer selling, spreads/basis relaxing - as well as record long fund positioning in today's COT report.

China signed the RCEP yesterday - the world's largest free-trade agreement - and this morning Chinese industrial production data came in better than expected (+6.9% y/y), boosting Chinese stock markets and CNY currency. Soybeans, bean oil, and cotton show the highest co-movement to CNY historically. Copper, another China-linked commodity, is at 2yr highs this morning.

Macro data is light this week. Investors see U.S. retail sales on Tuesday and various global manufacturing surveys. No central bank meetings. Focus is on the Covid-19 pandemic and the rocky Trump-Biden transition. Markets are trading with a mild risk-on tone this morning, boosted by positive China sentiment and a weaker U.S. dollar.

The CFTC will release COT data from November 10th later today. This data captures the fund inflows from last week's WASDE rally and will likely show funds +1.0mm contracts long across the ag complex for the first time.

Agriculture price seasonals turn more broadly supportive at the end of the month for oilseed markets (canola seed is an exception), e.g., soybean meal futures have risen 16 out of 18 years the 30 trading sessions starting today (Nov 16th close).

Watch this week:

Fundamentals: Argentina got much-needed moisture this weekend, southern Brazil has rains in the forecast, and farmer selling has softened basis. China demand is firm (strong CNY helps) and grain and oilseed balance sheets remain tight.

Non-fundamentals: Today's holiday-delayed COT report will show record-long fund positioning, with non-commercial traders roughly +360k contracts corn, +220k beans. Watch how prices adjust to today's COT data and watch the path of the U.S. dollar, esp vs CNY and BRL.

Chart of the Week: Chinese markets are rallying following the signing of the RCEP trade deal this weekend and strong industrial production data this morning. Chinese yuan strength has been a positive tailwind for agriculture futures broadly, especially China-linked markets like soybeans, soybean meal, and cotton.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets November 9, 2020

Agriculture futures are being supported by a weaker U.S. dollar following Joe Biden's electoral college win and ahead of Tuesday's November WASDE report.

This weekend's COT positioning report showed small hedge fund outflows (the first weekly hedge fund selling since August). Funds still hold massive long positions across the ag complex, especially in soybeans, soybean meal, canola seed, corn, spring wheat, and kansas wheat.

Fund positioning will be a negative price driver if/when some negative catalyst drives funds to reduce positions all at once. Funds don't like holding extended long positions, especially in grains.

Macro data is light this week following last week's elections, non-event Fed meeting, and better-than-expected NFP jobs report (+638k jobs vs +580k exp). Investors see U.S. CPI inflation data Thursday and PPI data Friday. Focus is on the Covid-19 pandemic, government stimulus efforts, and the Trump-Biden transition. Markets are trading with a firm risk-on tone this morning, boosted by a weaker USD.

Agriculture price seasonals are negative during the first weeks of November, before turning more broadly supportive at the end of the month. Price patterns worth noting:

• Robusta futures have dropped 11 out of 12 years the 35 trading sessions starting today.

• Canola seed futures have dropped in 9 out of 10 years the 16 sessions starting today.

• Palm oil and bean oil have bullish multi-week price patterns starting Friday.

Watch this week:

After last week's big macro download, focus shifts back to fundamentals this week, especially updated yields and Chinese export numbers in Tuesday's WASDE report. South American weather has been dry, exports have been strong...both bullish soybeans. Watch pre-report position squaring.

On the macro side, watch the path of the S&P 500 (proxy for broad risk sentiment), and watch if the U.S. dollar can break below the multi-year lows from late August. Gold at $1,950/oz and Bitcoin $15k are underscoring the Biden USD devaluation theme. A weaker U.S. dollar is a powerful positive lever for ag futures - chart of the week below.

Chart of the Week: Joe Biden’s electoral college win has boosted stock markets and weakened the U.S. dollar - both positive tailwinds for agriculture futures.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets November 2, 2020

Hedge funds hold massive long positions across grain and oilseed markets heading into the biggest macroeconomic week of the year.

Last Friday's COT positioning report showed non-commercial hedge fund traders +997k contracts net long, a new record versus the previous all-time high of +968k contracts from Feb 2011. Soybeans, soybean meal, canola seed, corn, and kansas wheat stand out as especially overbought and vulnerable to correction if some negative catalyst (e.g. more risk off macro trading) drives funds to cut extended long positions all at once.

This week's macro calendar includes the U.S. election, a Fed meeting, and Oct NFP jobs:

• Tuesday: U.S. election

• Thursday: Bank of England policy decision (more QE likely), Fed policy decision and Powell press conference, U.S. jobless claims

• Friday: U.S. Nonfarm Payrolls (exp. +600k new jobs, unemployment rate 7.7%).

Macro investors are also watching Covid cases accelerate and international government responses (Geneva back under partial lockdown today). This morning crude oil is at five-month lows and the U.S. dollar is at one-month highs...both negative headwinds for ag futures.

Price seasonals are negative during the first weeks of November, especially for corn, kansas wheat, spring wheat, bean oil, sugar no. 11 and the Dalian markets.

Watch this week:

The U.S. election on Tuesday is the biggest macro catalyst of the year. Investors want clarity and quick, uncontested election results. With hedge funds extended long and price seasonals broadly negative, any macro risk off trading following election night would likely drag ag prices lower.

And note: ag markets tend to have a "sell the fact" reaction following election nights. Corn, wheat, beans, meal, bean oil, sugar, and coffee have sold off in the five-day period *after* each the past three election nights (reinforcing the early November negative seasonal trend). Chart of the week below.

Fundamentals: Better Black Sea and Brazil weather, slower Chinese buying, and continued U.S. farmer selling have relaxed inverses over the past week. Next Tuesday's WASDE report is a long way away...focus this week is on the macro, esp. tomorrow's election.

Chart of the Week: Sell the election? Corn, chicago wheat, kansas wheat, soybeans, soybean meal, bean oil, sugar, and arabica coffee have sold off in the five trading session period *after* each of the past three election nights. For example, corn futures dropped -9.4% in 2008, -2.4% in 2012, and -3.6% in 2016.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets October 26, 2020

Hedge funds are record long agriculture futures ahead of big macroeconomic catalysts, including U.S. elections next Tuesday, November 3rd. 

Non-commercial traders are ~+980k contracts net long agriculture futures in aggregate this morning, above the previous all-time high of +968k contracts from February 2011. This record positioning remains the biggest non-fundamental red flag for agriculture futures looking forward - especially for markets like soybeans, soybean meal, canola seed, kansas wheat, corn, and cotton.

What could be the catalyst that drives speculators to cover their massive long positions?

The clearest answer is some reversal of the bullish drivers that got us here: slower China buying, weaker cash markets, lower inflation expectations, weaker crude oil, or a stronger U.S. dollar. Any of these bearish price catalysts could drive traders to liquidate big long positions.

The macroeconomic calendar is packed over the next two weeks. This week investors' focus is on central bank decisions and GDP data ahead of the U.S. election. 

• Monday: China kicks off plenum meetings for new economic targets and  "2035 vision"

• Tuesday: U.S. consumer confidence, BP & CAT earnings

• Wednesday: Bank of Brazil & Bank of Canada rate decisions

• Thursday: BOJ & ECB rate decisions, U.S. jobless claims, U.S. Q3 GDP (exp. +32% q/q)

• Friday: Eurozone Q3 GDP, XOM earnings.

• Next week: U.S. election Tuesday, Fed meeting Wednesday, NFP jobs Friday

Macro investors are also watching record U.S. Covid-19 cases (a negative USD driver) and U.S. election odds. 

Price seasonals are mixed this week before turning more negative into the first weeks of November.  Corn, chicago wheat, kansas wheat (chart of the week below), spring wheat, and bean oil have negative seasonal price patterns starting this week.

Watch this week:

Non-fundamentals: The next two weeks are big macro weeks with the potential for a lot of price volatility. Watch how risk assets respond to this week's data and watch how currency pairs react to the different central bank meetings (EUR, BRL, and CAD vs USD). Especially with seasonals turning more bearish into November and fund positioning at nosebleed levels, any macro damage (esp a stronger USD) would drive ag prices lower.

Fundamentals: Watch how U.S. farmer selling and the pace of China buying react to higher futures prices. Brazil and U.S. plains weather is improved, Russia is still dry. 

Chart of the Week: Price seasonals for agriculture futures turn more negative into November. For example, Kansas wheat futures have dropped in 16 of the past 18 years the 15 trading sessions starting October 29th (this Thursday). Chicago wheat, corn, spring wheat, and bean oil have similar negative patterns heading into November.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets October 19, 2020

Hedge fund positioning is at nosebleed levels (esp for oilseed and wheat markets), the macro environment is a neutral trading input coming into this week, and price seasonals become more mixed as we get into the second half of October.

This weekend's COT positioning report showed non-commercial fund traders long +844k contracts of ag futures in aggregate and that net position is closer to +912k net long this morning given the price and open interest changes since last Tuesday. 

Only *three* COT reports have ever printed net non-commercial positions greater than today (chart of the week below):

• Today: +912k contracts, $27 billion notional value

• 14 June 2016: +954k contracts, $32 billion notional value

• 1 Feb 2011 & 8 Feb 2011: +967k contracts, $44 billion notional value​​​

Agriculture futures are cheaper today versus June 2016 and Feb 2011, so today's notional $ value is lower...but the prospect that we could see the first +1 million contract non-comm position in the coming weeks underscores just how bulled up funds are. 

Macro data was mixed last week: higher U.S. jobless claims and bad manufacturing surveys, but great U.S. retail sales data. This morning China's Q3 GDP data underperformed at +4.9% vs +5.5% est, a negative flag for ags with high positive correlations like soybeans, bean oil, and cotton. 

Investor focus this week is on rising Covid-19 cases and U.S. election odds; the macro calendar is light with Thursday's U.S. jobless claims (now rising?) and the second and final debate between Trump & Biden in Tennessee.

Price seasonals turn more mixed over the coming weeks: positive for soybeans, meal, cattle, arabica, and cocoa...but negative for corn, wheat, cotton, white sugar, robusta, and all the Dalian markets.

Watch this week:

Fundamentals: Watch how U.S. farmer selling (~50% through U.S. harvest) and the pace of China buying react to higher futures prices. Brazil is getting needed moisture (bearish beans) but Russian / U.S. central plains are dry, which is keeping funds confidently long wheat. 

Non-fundamentals: Data is light this week, watch the U.S. dollar (firmer today) and watch to see if seasonally-negative price trends start to gain traction in markets like corn, wheat, and cotton...all of which are expensive and overbought versus recent history.

Chart of the Week: Fund positioning is reaching extreme and historic levels. Only *three* COT positioning reports have ever shown hedge funds longer than today’s +912k contract aggregate non-commercial trader position (one week in June 2016, two weeks in Feb 2011).

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets October 12, 2020

Agriculture markets are benefitting from two important positive catalysts:

• Price-supportive WASDE stats on Friday, including a tighter soybean carryout on lower acreage and higher exports. 

• Macro environment upgrade driven by Trump's Covid recovery, Chinese markets rallying after Golden Week, and investor optimism for a U.S. stimulus package. The S&P 500 is up +3.4% in October, Chinese A-shares +1.7%, crude oil +1.3%, U.S. dollar -1.0% = all positive tailwinds for agriculture futures.

​The macro calendar this week focuses on inflation, manufacturing, and retail sales data:

• Monday: U.S. Columbus Day holiday (commodity futures and stock markets open)

• Tuesday: CPI inflation data

• Wednesday: PPI inflation data

• Thursday: Jobless claims, Philly Fed, Empire Manufacturing

• Friday: U.S. retail sales

Fund positioning remains the most significant red flag for agriculture traders, especially for oilseed markets. This weekend's COT report showed managed money traders record long across the soy complex (chart of the week below) and non-commercial traders are the longest they've been in aggregate since June 2016.

Seasonals:

Price seasonals are bullish over the coming weeks - especially for oilseeds, cattle, arabica coffee, and cocoa. Seasonals for the grain markets, cotton, and the Dalian markets turn more negative into the end of October. 

What matters this week:

Friday's WASDE statistics and the improved macro environment go a long way in keeping massive hedge fund long positions confident. 

Looking forward, we enter a data vacuum ahead of the U.S. election: The big Sep 30th stocks report and Oct 9th WASDE are now behind us and there are no more NFP job reports or Fed decisions until after November 3rd. This week we see some second-tier U.S. data, but investor focus is shifting to U.S. elections and the increasing pace of U.S. Covid-19 infections in the U.S. and Europe.

Watch this week:

Fundamentals: Watch how U.S. farmer selling and the pace of China exports react to higher futures prices and watch South American weather maps.  

Non-fundamentals: Watch how markets react to this week's U.S. data, esp price action in crude oil (currently rangebound) and the U.S. dollar (downtrending = good for ags) and watch how traders adjust to record long positioning across the soy complex.

Chart of the Week: Managed money hedge fund traders are record net long across the soy complex today.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets October 5, 2020

Agriculture futures face strong cross-currents ahead of Friday's WASDE report, with the scale tilted to the downside: extended long fund positioning (a bearish trading input) and a firmly negative macro environment versus bullish October price seasonals. 

Fund positioning: 

This morning non-commercial hedge fund traders are the longest they've been in four years. Funds are especially long across the oilseed markets, e.g., soybeans, soybean meal, and canola seed. The question looking forward: Can fundamental data (export pace? lower yields on Friday?) or non-fundamentals (weaker USD? higher crude?) keep these massive fund longs confident?

Macro:

The macroeconomic environment was a negative trading input last week (crude oil down, BRL down), and news of Trump's Covid-19 hospitalization pressured risk assets lower on Friday. This is a light data week - investor focus will largely be on President Trump's health and the diminished prospects for a new U.S. fiscal stimulus package. 

• Wednesday: China Golden Week ends, Pence-Harris VP debate, Fed minutes

• Thursday: U.S. jobless claims and continuing claims

Seasonals:

Price seasonals are bullish in September, especially for the oilseed markets and cocoa. The big caveat: seasonals work best in "healthy" market environments - this is far from that, both from a fundamental and non-fundamental perspective.

What matters this week:

The macroeconomic environment - with focus on Trump's health - will be a major trading input for agriculture futures this week. The negative macro (weak crude, weak BRL) is flashing warning signals for traders...which matters given extended long fund positioning.

Ahead of Friday's WASDE, watch price action in crude oil, USD, and BRL and watch how traders adjust to near-record length across the soy complex.

Chart of the Week: Agriculture futures have seen strong fundamental tailwinds - dry weather, China exports, tighter stocks - all of which have incented new fund long positions and driven prices higher. Today 14 agriculture markets are expensive & overbought versus data from the past 24 months.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets September 28, 2020

The most significant non-fundamental change for agriculture markets last week was the sharp deterioration of the macroeconomic environment. 

The primary drivers for last week's negative macro mood: Rising global Covid-19 cases & lockdowns + amplified U.S. election risks + Fed Chair Powell's pessimism + Congress' failure to pass new stimulus. 

Crude oil dropped -2.9% on the week, the S&P 500 lost -0.6%, USD strengthened +1.8%.

This risk-off trading (and potential for more over the coming weeks) drove traders to trim their massive long bets in agriculture futures. Expensive and overbought markets got hit hardest: soybeans dropped -3.9% last week, canola seed -3.8%, chicago wheat -5.3%. 

Macro catalysts this week include the last big jobs report before the U.S. election: 

• Tuesday: First U.S. Presidential debate between Trump & Biden in Cleveland

• Wednesday: USDA Quarterly Stocks report, Chinese PMI data, U.S. ADP job #s.

• Thursday: China's Golden Week begins, U.S. jobless claims and continuing claims data

• Friday: Monthly U.S. NFP jobs report (exp. +850k jobs, unemployment rate 8.2%)

Hedge funds are still LONG ag futures - even after last week's macro-driven trimming - and this extended fund positioning is a bearish trading input looking forward. Today's +640k contract aggregate non-commercial trader position is the longest net fund position since February 2017. 

Price seasonals turn bullish into October - Peak's seasonal heat maps (chart of the week below) are a sea of green for the coming weeks. The big caveat this year: ag futures have already seen a broad price rally in August & September...it's less likely we'll see an October post-harvest bounce starting from these levels. 

What matters this week:

Fund positioning is bearish, seasonals are bullish, and the (currently negative) macro environment will play an important x-factor this week for agriculture markets. 

To keep it simple: Watch price action in crude oil & inflation expectations and watch the U.S. dollar, especially around the U.S. employment reports later in the week.

Chart of the Week: Price seasonals are strongly bullish in October - Peak’s weekly seasonal heat maps are a sea of green for the coming weeks. Is some of this bounce already priced in after September’s counter-seasonal rally?

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets September 21, 2020

Hedge fund positioning is the most notable non-fundamental red flag for agriculture prices today. Non-commercial traders have a net long position of +680k contracts across the ag complex...the longest since February 2017.

Over the past five years, the CFTC's weekly COT positioning reports have shown funds this long only five other times: one week in February 2017 and four weeks in June 2016 (chart of week below).

Price seasonals cross an important inflection point at the end of September and turn more bullish into October. The big caveat: oilseed markets have seen a fundamentally-driven counter-seasonal rally in September. Seasonals feel broken for soybeans today after a great 2019 and solid start to 2020. 

The macro environment is a neutral trading input for ag futures today. The focus this week is on Fed chair Jerome Powell's testimonies, esp his comments on stimulus and inflation targeting. 

• Tuesday: Powell testifies on the CARES Act before the House Financial Services Committee.

• Thursday: Powell testifies before the Senate Banking Committee + U.S. jobless claims and continuing claims data (trending lower) + U.S. home sales. 

The question for agriculture traders this week:

Can strong Chinese exports keep big fund longs engaged and keep fund shorts disinterested? Will ramped up U.S. harvest and farmer selling be catalysts that put a cap on this rally?

Watch this week:

On the fundamental side, watch the pace of China sales versus improved South American precipitation and signs of farmer selling. 

Macro focus is on Powell's testimonies and direction for the U.S. dollar and inflation expectations. Brazilian real dropped on Friday (bad for ags) - keep a close eye on currency moves this week.

Chart of the Week: Hedge funds are LONG agriculture futures and playing for higher prices on the back of strong Chinese exports and lower U.S. production. Of the 261 weekly government COT positioning reports of the past five years, only five have shown funds longer than today.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets September 14, 2020

The fundamentally bullish tailwinds of lower production prospects and strong Chinese buying interest continue to prop up agriculture markets against non-fundamental headwinds, especially extended-long hedge fund positioning.

A quick review of the three main non-fundamental trading inputs coming into this week:

#1 Hedge fund positioning remains a *very* negative trading input looking forward: 

• Funds have bought ag futures in ten of the past eleven COT reports on a combination of a weaker USD, higher inflation #s, derecho damage, dry soybean weather, and China buying.

• Non-commercial traders are ~+530k cks net long today = the longest since February 2017.

• Canola seed (z-score of +3.5) and soybeans (z-score of +3.4) stand out as extremely overbought. See our chart of the week below.

#2 Price seasonals are a broadly negative trading input, especially for soybeans, bean oil, and meal. 

• September is usually the most seasonally negative month for the soy complex. This year soys have seen a strong counter-seasonal rally on dry weather.

• The seasonal low for the entire ag complex is September 27th = two weeks from now.

#3 The macro environment is a neutral trading input for ag futures; the focus this week is on central bank decisions and currency moves:

• Bad for ags: Crude oil is at three-month lows, inflation soft, SPX off all-time highs, USD firmer.

• Good for ags: BRL and CNY are firm versus USD, industrial metals are up.

• Coming up this week:​

  • Tuesday: U.S. Empire manufacturing data.

  • Wednesday: Fed policy decision and Powell press conference (watch USD), Brazil policy decision (watch BRL), and U.S. retail sales.

  • Thursday: Bank of Japan policy decision, Bank of England policy decision, weekly U.S. jobless claims, U.S. housing starts.

What matters this week:

Fund positioning is the biggest red flag for agriculture futures this week; funds are long across the ag complex and the bull needs to be fed: lower production #s or more China business. 

Seasonals are also negative for the oilseed complex, but there's a lot more green looking forward...first for corn, wheat, and sugar this week...then *everything* is green in October.

The question for agriculture traders this week: 

Will china sales and/or dry U.S./Brazil weather feed the soy market bull and keep hedge fund long positions confident and shorts disinterested?

Watch this week:

On the fundamental side, watch the pace of China sales versus signs of ramped up farmer selling (corn just closed above its 200-day moving average for the first time in 13 months...).

Macro focus is on central banks and how USD, BRL, GBP, and EUR all react to different policy decisions this week. Keep it simple and watch the dollar. USD up = ags down.

Chart of the Week: Dry weather and strong Chinese buying have driven hedge fund traders to pile on long bets in soybean and canola seed futures. We see positioning z-scores of +3.5 less than 0.5% of the time.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.

Ag Markets September 7, 2020

Agriculture futures face non-fundamental headwinds ahead of Friday's WASDE report.

Hedge fund positioning is a *very* negative trading input looking forward: 

• Friday's COT positioning report showed +197k contracts of aggregate fund buying in ag futures, the second largest inflow week of 2020.

• Funds have bought ag futures in nine of the past ten COT reports.

• Non-commercial traders are ~+440k contracts net long = the longest since March 2018.

• Soybeans (z-score of +3.3!), canola seed, and robusta coffee are the most overbought markets.

Price seasonals are a broadly negative trading input, especially for soybeans, bean oil, and meal. 

• The most seasonally-negative 21-day period of the year for soybeans started this past weekend, for bean oil it starts today. 

• The seasonal low for the entire ag complex is September 27th; there is still time for prices to settle lower, especially in the oilseed complex (weather and WASDE permitting...).

• Sugar is an exception; Sep is the most seasonally bullish month for SB and QW. 

The macro environment is downgraded to a neutral trading input for ag futures coming into this week:

• Bad for ags: Crude oil is lower, inflation soft, SPX off all-time highs, USD firmer.

• Good for ags: BRL and CNY are holding recent gains versus USD, metals are up.

• Coming up this week:

  • ​Today: U.S. Labor Day market holiday

  • Thursday: ECB meeting (week's biggest USD driver), weekly U.S. jobless claims and continuing claims data, PPI inflation data

  • Friday: CPI inflation data 

What matters this week:

Fund positioning is the biggest red flag for agriculture futures this week - hedge funds are extended long across most agriculture markets.

The question for agriculture traders this week: 

What will be the trigger that causes funds to cover big longs and add back short positions?

• Tuesday's crop condition scores or Friday's WASDE china and/or yield #s?

• Thursday's ECB meeting? (USD strength drives funds to cover longs)

• Thursday & Friday's inflation data? (Softer inflation = lower index investment in ags)

• September's seasonal gravity? The window is closing for additional soybean crop damage.

The hedge fund positioning rubber band is the most stretched it's been in 2.5 years; it will snap back and drive prices lower...it's not if, but when... 

Watch this week:

On the fundamental side, watch tomorrow's crop condition scores ahead of Friday's big WASDE report. Macro focus is on the ECB Thursday (big USD driver) and inflation data.

Chart of the Week: Hedge funds are the longest they’ve been in agriculture markets since March 2018. This stretched positioning will matter for prices if some fundamental catalyst (e.g. Friday’s WASDE report) or non-fundamental catalyst (e.g. Thursday’s ECB policy changes) forces traders to liquidate big long positions all at once.

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.