Ag Markets July 13, 2020

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Negative price seasonals are the primary non-fundamental price driver for agriculture futures coming into this week. The macro environment is a neutral trading input and fund positioning is a slightly bearish input (especially for soybeans) after the two biggest hedge fund inflow weeks of 2020.

Seasonals:

  • Price seasonals are a strongly negative trading input for most agriculture markets in July; futures prices tend to drop as agriculture traders remove the risk premium around U.S. production.

  • Several seasonal price patterns illustrate this strongly negative trend (full list sent to Peak clients this morning), including a strongly negative trend in soybeans: soybeans have sold off in 15 of the past 18 years the 6 sessions starting July 15th (chart of the week below).

Macro:

  • The macroeconomic environment is a ~neutral trading input: China sentiment has boosted agriculture futures (A-Shares up, CNYfx up), but other risk indices look more mixed, and SA currencies are a negative headwind.

  • It's a busy week for economic data and Thursday is a big macro day: Chinese Q2 GDP, ECB meeting + Lagarde press briefing, and U.S. jobless claim #s + U.S. retail sales. 

  • Q2 earnings season ramps up this week, especially for banks: JPM, BAC, WFC, GS, C, MS

  • Covid-19: U.S. cases are still trending higher as states are figuring out how to get students back to school safely and unemployment bonus payments end in three weeks.

This weekend's COT positioning report (July 7th data) showed non-commercial fund traders bought +152k contracts, the largest aggregate inflow week of 2020. Corn still looks oversold, even after two weeks of big fund short covering. Soybeans is still the most overbought agriculture market.

What Matters This Week:

The question for agriculture traders this week: Late July seasonals are the most negative of the year...what positive fundamental or non-fundamental driver could offset this downward pressure?

Watch this week:

  • Seasonals: Will the strongly negative July seasonal trend gain traction this week?

  • China has been a positive driver for agriculture futures; will Phase 2 trade deal pessimism, Chinese GDP data, or U.S.-China military tensions derail this positive trajectory?

  • Dollar: Watch the ECB announcement and U.S. data on Thursday; the U.S. dollar has been weak lately; any re-strengthening would be an additional headwind for agriculture futures. USD up = ags down.

Chart of the Week: There are several negative seasonal price patterns in agriculture futures over the coming weeks, including soybeans. Being short November beans for the six sessions after July 15th (this Wednesday) has been a profitable trade in 15 of the past 18 years:

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

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