Ag Markets April 6, 2020
/The macroeconomic environment will again be the main non-fundamental driver for agriculture futures this week (the USDA's WASDE production report is this Thursday); focus will be on:
Evidence we're nearing an apex in Covid-19 cases (Italy, Spain, France cases lower... U.S. and U.K. two weeks away?)
OPEC+ meeting on Thursday, possible coordinated crude production cuts
U.S. jobless claims data on Thursday (fewer claims than last week's record +6.6mm?)
Last week agriculture markets saw mixed macro signals: crude up +19.5% on OPEC+ optimism (good for ag futures prices) vs U.S. dollar up +2.2% on flight-to-safety flows (bad for ag prices).
This morning S&P futures are up +3.0%, crude oil down -2.0%, USD flat.
Price seasonals remain negative for agriculture futures in April (exception cocoa and canola seed) before turning more positive in May. It's still too early to call the seasonal turn into U.S. planting.
This weekend's COT positioning report was relatively quiet: small net inflows, mostly chicago wheat (new longs) and soybeans (short covering). The two main COT takeaways:
Recent macro volatility has driven HFs to cut positions in ag futures at a record pace over the past month; hedge fund gross exposure is down to levels last seen in Jan 2012 (chart below).
Hedge fund positioning is a ~neutral input overall: chicago wheat and arabica look overbought; corn, cotton, cattle look cheap and oversold.
What Matters for Ag Futures This Week:
There are competing macroeconomic forces for agriculture markets:
The boost in risk sentiment from flattening the curve / nearing the Covid apex and prospect of higher energy prices are positive tailwinds for ag prices.
The U.S. dollar's persistent strength - and associated weakness in Brazilian real and Argie peso (both at new all-time lows) - are big negative headwinds for ag prices.
What would make the macro environment positive for ags?
Proof that we've crossed the apex, stable energy markets, and a weaker USD. We're not there yet.
Watch U.S. jobless claim numbers and watch headlines coming out of the OPEC+ meeting, both on Thursday (same as the WASDE report). Markets are closed on Friday for the Good Friday holiday.
Chart of the Week: Bets are off: Recent macroeconomic volatility has driven speculators in agriculture futures to cut their positions at a record pace over the past month; hedge fund total positioning is down to levels last seen in January 2012.
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