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).

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