Ag Markets November 30, 2020

South American weather maps and the macroeconomic environment are the main price drivers for agriculture futures this week. December is a crucial month for Brazil and Argentina production prospects and also the month when correlations are the strongest between macro inputs and agriculture futures.

Macro:

Markets traded with a firm risk-on tone last week. The combination of strong energy markets, firmer inflation expectations, and a weak U.S. dollar is a positive tailwind for ags today.

The macro calendar includes a 2-day OPEC meeting starting today and NFP job numbers on Friday:

• Monday: OPEC meetings begin (watch crude oil)

• Tuesday: US ISM manufacturing, Fed Chair Powell testifies before the Senate (watch USD)

• Wednesday: U.S. ADP jobs (private survey version of NFP)

• Thursday: U.S. jobless claims

• Friday: U.S. Nonfarm payrolls, exp. +500k new jobs, unemployment rate ~6.8% (watch USD)

Fund Positioning:

The CFTC will publish updated COT positioning data from Nov 24th later today. Hedge fund flows have been ~flat in the past two COT reports as funds have held record length across the ag complex. Kansas wheat, canola seed and soybean meal are the most overbought ag markets today...all three of which have negative price seasonals over the coming weeks.

Seasonals:

Price seasonals are mixed: Positive for grains, palm oil, matif rapeseed, and white sugar but negative for meats, kansas wheat, meal, canola seed, coffee, cocoa, and oats.

Price patterns worth noting this week:

• Lean hog futures have fallen 16 out of 18 years the 11 sessions starting Tuesday.

• Palm oil futures have risen 13 out of 15 years the 20 sessions starting Thursday.

Watch this week:

Fundamentals: South American weather matters in December. Southern Brazil and Northern Argentina are getting rains, but it's hot and dry elsewhere. Production uncertainty is keeping prices high, curves inverted, and hedge funds confidently long across the soy complex. Also watch China buying and U.S. farmer selling.

Non-fundamentals: After two quiet weeks, the macro matters again this week. Agriculture futures tend to get pushed around by macro flows into calendar year end. Watch how crude oil and the U.S. dollar react to this week's OPEC decisions and NFP data. Today's COT report will be a reminder that funds are extremely long across the ag complex...the bulls need to be fed.

Chart of the Week: The U.S. dollar has dropped -2.4% in November and today sits at the lowest level since April 2018. This U.S. dollar weakness has been a strong positive tailwind for agriculture futures. USD down = Ags up.

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