Ag Markets June 15, 2020
/The macro environment is losing momentum after a positive start to the month of June.
Last week the S&P 500 dropped -4.8%, crude oil -8.4%, BRL -1.8%, and BCOM Ags -1.3%.
This morning S&P futures and crude oil are trading lower.
This macro move matters for ag markets, especially in the context of broadly negative price seasonals for agriculture markets from June - September.
If the macro environment turns more negative (crude down, S&P 500 down, USD up), that means two big price headwinds for ags markets: macro and seasonals.
Last week we got a glimpse of what that looks like: 23 of 26 agriculture futures markets finished the week lower. See the chart of the week below.
This week is a busy week for macro data and central bank announcements:
Monday: U.S. Empire manufacturing, CBOE trading floor open.
Tuesday: Bank of Japan policy decision, Fed Chairman Powell's Senate banking committee testimony, U.S. retail sales and industrial production.
Thursday: Bank of England policy decision (more bond buying?), Swiss National Bank policy decision, and U.S. jobless / continuing claims
Saturday: Trump's first Covid-era live campaign in Tulsa, Oklahoma.
Investors will also be balancing the upside from businesses reopening versus evidence that Covid-19 cases are accelerating. Arizona, Arkansas, Alabama, North Carolina, and Oklahoma reported record new cases last week.
Investor positioning: This weekend's COT report showed that hedge funds have sold ag futures in nine of the past ten weeks. Hedge fund positioning is becoming a more bullish trading input and funds are extended short in markets like corn, spring wheat, cattle, and hogs. Corn is the most oversold market across the ag complex.
What Matters This Week:
Seasonals are a negative trading input and will remain that way for the next four months. As a reminder, the ag complex seasonal high last year, 2019, was June 17th = this Wednesday. If you're long grain and oilseed futures for fundamental reasons, the calendar is not your friend.
The macroeconomic environment is an important x-factor this week:
Positive macro (S&P up, crude up, USD down) = an offset to negative price seasonals.
Negative macro (S&P down, crude down, USD up) = an acceleration of negative price seasonals = ag markets drop further...like last week.
Big Picture: Macro direction matters this week, seasonals are a headwind, and hedge funds have gotten shorter, especially in corn.
Watch this week:
Investor sentiment: businesses reopening vs Covid-19 "second wave" acceleration.
Watch Powell's testimony, BoJ and BoE policy decisions...all are important USD drivers.
Will price seasonals keep pressing ags lower? Will investors continue to remove a price risk premium from our markets ahead of the big June 30th stocks report later this month?
Chart of the Week: Macro matters. Last week the macroeconomic mood soured (S&P 500 -4.8%) and 23 out of 26 ag markets finished the week lower.
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