Ag Markets February 24, 2020

The macroeconomic environment feels worse coming into the week with S&P futures down over -1%, crude down -2.5%, USD up +0.3%. Ag markets are broadly lower in the overnight session this Monday morning.

The macro environment will again be the #1 non-fundamental driver for ag futures this week, with a big focus on coronavirus' impact on global data and newly reported cases in South Korea, Italy, and Iran.

Last week was mixed for data: New York and Philly Fed surveys were great but more forward-looking PMI manufacturing factory order numbers last Friday were the lowest since 2013. The yield on 30-year U.S. bonds are at all-time lows, gold is at 7-year highs. 

The data calendar is empty this week; coming up: China manufacturing numbers this Saturday (Feb 29th), Super Tuesday (March 3rd), and U.S. NFP job numbers next Friday (March 6th).

Price seasonals are broadly negative for agriculture futures; this is the time of year when traders are comfortable removing a price risk premium around South American production. We certainly saw this last year when hedge funds sold ~620k contracts of agriculture futures between mid-Feb and mid-May 2019. 

Market structure still looks like a broadly bearish input; funds are longer vs the 24-month average due to big/record long positions in markets like chicago wheat, white sugar, arabica coffee, and cocoa. 

What Matters This Week:

Coronavirus will be the market's main focus, especially given the negative drag on forward-looking data last week. We're seeing true "risk-off" trading this morning with equities down, energy markets down, industrial metals down, and US dollar up...a miserable combination for agriculture futures.

Add in bearish price seasonals and extended-long fund positioning and most non-fundamental factors are headwinds for futures prices today. Be careful with long positions in this environment, especially for markets with massive fund long interest.

Chart of the Week: We’re in a broadly bearish seasonal period for agriculture futures prices and markets like kansas wheat, chicago wheat, and sugar #11 have firmly negative price patterns worth noting, e.g., for kansas wheat: KWK prices have fallen in 16 of the past 18 years the 34 trading days after Feb 25th (tomorrow).  

For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.