Ag Markets January 20, 2020

The main non-fundamental price drivers for agriculture markets this week = bullish January price seasonals vs increasingly bearish market structure with the macroeconomic environment (~neutral) as the x-factor ahead of a big week for central banks.

Price seasonals are bullish for agriculture futures through the end of the month before turning lower as we enter February, especially in the grain markets.

Market structure is getting more bearish: hedge funds are the longest they've been in ag futures since June '18 and Friday's COT report showed the fourth largest buying week on record for sugar no. 11 and white sugar (record new longs).

Like the broader market structure picture, momentum CTA traders (~25% of the hedge fund pie) are still extended long. These momentum traders try to be the "first movers" and front-run bigger swings...it's interesting to note that they added to long risk in corn, soybeans, and cattle on Friday.

The macro environment is ~neutral for ags ahead of a big week for central banks: Bank of Japan Tuesday, ECB Thursday, with U.S. Fed and Bank of England decisions next week. The ECB is likely the biggest dollar driver with Lagarde set to outline a top-down review of the ECB's targets and approach. USD is at three-week highs this morning. The Davos meetings and U.S. impeachment proceedings this week make for interesting headlines but shouldn't move ag futures markets much.

Bottom Line: It's another week where the macro environment will be the tiebreaker and swing factor between bullish January seasonals and bearish extended long fund positioning. The main macro event this week is the ECB rate decision this Thursday starting 13:45 GVA, 6:45am Chicago. Watch the impact on the US dollar: EUR down = USD up = ag futures down.

Chart of the week: Recent central bank stimulus (Fed balance sheet up > 10% since September) has helped risk assets broadly, but our agriculture markets haven't kept up. Today the ags vs equities ratio is making new all-time lows.

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