Ag Markets June 8, 2020
Last week's risk-on macro trading flipped all the right switches for agriculture futures: crude oil +11.8% on the week, S&P 500 +4.9%, Brazilian real +7.6%, and, importantly, U.S. dollar index down -1.4%. The BCOM Agriculture subindex rose +2.8% on the week to its highest level in two months.
Friday's much better than expected Nonfarm payrolls report (+2.5mm jobs vs -7.5mm exp.) helps set a positive trading tone for the coming weeks. Also this weekend: OPEC and Russia extended crude oil production cuts, another positive for energy-linked ags like corn, bean oil, and sugar.
Price seasonals are a headwind and remain negative for the next four months; ag prices tend to drop from June 1st to October 1st. The ag complex seasonal high last year, 2019, was June 17th = next Wednesday.
It's not just the corn, soy, and wheat markets that see negative seasonal pressure - cotton futures have dropped in 12 of the past 12 years during these coming three weeks. Chart of the week below.
Hedge fund positioning is mixed by market but generally a bullish trading input. This weekend's COT report showed that hedge funds have sold in eight of the nine past weeks and funds are extended short in markets like corn, meal, cattle, and hogs. Funds are *very* short corn: +5 MS score, -1.68 z-score.
What Matters This Week:
Macro momentum matters. If the macro mood remains positive - especially energy up, inflation up, USD down - there are plenty of cheap and oversold ag markets that make great value picks for optimistic macro traders.
Corn is the market with the most explosive upside from a positioning standpoint. Corn's massive 3+ billion bushel carryout is a long-term cement brick, but summer weather and/or price momentum could drive funds to cover shorts over the near-term.
Big Picture: Macro momentum matters, seasonals are a headwind for the coming months, and hedge funds are extended short in a few key markets, especially corn.
Watch this week:
Macro momentum. Watch Fed chairman Powell comments Wednesday.
Can agriculture markets maintain escape trajectory vs negative seasonal pressure?
Watch corn: funds are short (including momentum CTAs) and this recent rally hurts.
USDA WASDE report this Thursday ahead of the big June 30th stocks report later this month.
Chart of the Week: The macroeconomic environment has provided a big positive boost for agriculture futures this month, driving prices higher against the seasonally-negative June trend. Cotton futures prices have dropped in 12 of the past 12 years for the three weeks starting today…will the positive macro mood break this streak?
For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.
