Ag Markets October 5, 2020

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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.

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