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.
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