Ag Markets May 4, 2020
/This week we enter the most seasonally bullish multi-week period of the year for corn, chicago wheat, and soybean meal. U.S. planting and production disruptions often occur in May and June; we saw this last year when U.S. Midwest flooding in May prompted record hedge fund short covering.
On the macro front, we're counting down to what will be a historic Nonfarm payrolls report on Friday at 14:30 GVA, 7:30am Chicago. The NFP report is expected to print -21.3 million jobs, with an unemployment rate of 16.0%. We'll see ADP jobs (the private survey version of NFP) on Wednesday and weekly U.S jobless claim numbers on Thursday.
Beyond the NFP print on Friday, there isn't much else on the macro calendar: Q1 earnings season is winding down (Tyson reports today) and the Bank of England has a policy decision on Thursday.
This weekend's COT positioning report showed small new short positions in corn, chicago wheat and sugar #11. The main takeaway from the COT report: hedge fund positioning is a neutral input overall, there isn’t a supportive positioning set-up like May 2019 when hedge funds were record short and vulnerable to a big short-covering squeeze heading into U.S. planting.
Although fund positioning is ~neutral in aggregate, agriculture prices are low. The BCOMAg index is near all-time lows this week and the agriculture vs equities ratio is back near the lows from February (chart of the week below).
What Matters This Week:
#1 Price seasonals and any weather problems that could negatively impact U.S. production. May is a seasonally bullish month and the spring seasonal low last year was May 10th (this coming Sunday).
#2 Macro price action and Friday's big NFP jobs report.
What would be the most bullish non-fundamental setup for ag futures?
If stronger energy prices and a weaker USD can make the macro positive and some fundamental negative catalyst around U.S. planting / production drives prices higher and washes out shorts in markets like corn, spring wheat, and soybean meal.
Watch this week:
Price action in energy markets and U.S. dollar performance (USD up = Ags down)
U.S. jobless claim #s on Thursday and NFP jobs Friday, both at 14:30 GVA, 7:30am Chicago
Any U.S. planting / weather issues that make positive May seasonals grip
Chart of the Week: Agriculture markets have underperformed stock markets due to low energy prices, a stronger U.S. dollar, and burdensome balance sheets. The agriculture vs equities ratio is testing all-time lows, matching levels last seen in February before the Covid-19 macro washout.
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