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.
