Ag Markets March 23, 2020

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Agriculture markets have largely disconnected from the negative macro mood as bullish fundamental inputs (Argentina port strikes, China cargo buying) have lifted futures and triggered momentum trader short stops.

Looking forward, momentum and trend-following CTA positioning is less of a bullish input for markets like chicago wheat, kansas wheat, soybean meal, and arabica coffee.

The macroeconomic environment is a significant headwind for agriculture prices and will be the main non-fundamental input for traders this week.

S&P 500 futures have locked limit down this morning after the U.S. govt failed to pass a $2T stimulus bill. The S&P 500 is now down -35% from Feb 19th, just 23 trading sessions ago (chart below).

On the calendar this week:   

  • Tuesday: PMI manufacturing data from Europe, U.S., Asia

  • Tuesday: G7 Foreign minister summit (was planned for Pittsburgh, now a teleconference)

  • Thursday: US jobless claims; Over +1.5mm claims expected vs +281k last week, 500%+ jump

  • Thursday: Bank of England; already cut rates twice in March to 0.1% + more QE

Price seasonals remain broadly negative in March but turn more positive into April. 

This weekend's COT report showed record aggregate long liquidation outflows from both non-commercial (-186k cks) and managed money (-246k cks) hedge funds, partially offset by short covering inflows. It's worth noting that chicago wheat, soybean meal, and arabica coffee now look expensive and overbought versus data over the past two years.

What Matters This Week:

Progress on passing U.S. fiscal stimulus measures (hopefully later today) and U.S. jobless claim numbers on Thursday will be big drivers for investor sentiment. 

U.S. jobless claim numbers this Thursday at 13:30 GVA, 7:30am Chicago are the best "live" look at how Covid-19 is impacting the U.S. economy. Looking forward, these weekly unemployment insurance claim reports will be big S&P 500 and U.S. dollar movers; "Jobless claims are the new Nonfarm payrolls".

Aside from the macro environment, keep an eye on how chicago wheat, soybean meal, and arabica coffee perform after recent hedge fund inflows. We've seen fundamental traders, carry traders, and momentum CTAs push these three markets into "expensive and overbought" territory; these markets are the new "tallest nails" of the ag complex...like the sugar markets were a month ago, caveat emptor.

Bottom line: Watch U.S. govt fiscal stimulus progress today, watch jobless claim numbers on Thursday, and watch market sentiment via S&P 500 / crude oil / U.S. dollar. Our markets still have plenty of non-fundamental headwinds. 

Chart of the Week: The S&P 500 index is now down -35% from the February 19th market highs, a record-fast drop spanning only 23 trading sessions.

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

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