Ag Markets July 20, 2020
/Hedge funds have been on a buying spree for the past month and fund positioning in agriculture futures is now a more bearish trading input looking forward:
The COT reports from June 30th and July 7th showed the biggest hedge fund inflows of 2020, this weekend's COT report (July 14th data) showed small inflows, and this coming Friday's COT will likely show additional fund buying.
Non-commercial fund positioning in agriculture futures is the longest since mid-February.
There are now seven markets that look expensive and overbought versus data from the past 24 months: soybeans, chicago wheat, soybean oil, matif rapeseed, canola seed, feeder cattle, and white sugar (chart of the week below).
Price seasonals are firmly negative - agriculture prices usually trend lower in the last weeks of July.
Expensive and overbought markets like chicago wheat, soybeans, and bean oil make attractive shorts given the persistent negative seasonal trend looking forward...there is a lot of air beneath these markets until the next seasonal inflection point ~October 1st.
The macroeconomic environment is a neutral trading input heading into this week:
Macro price action is sending mixed signals:
Good for ags: strong inflation expectations, U.S. stock markets up, USD down.
Bad for ags: weak South American currencies, low growth expectations.
On the calendar this week:
Q2 earnings ramp up (Microsoft, Unilever, UBS, Coca-Cola, Tesla).
Covid-19: the U.S. Senate has a two-week window to negotiate new packages (possible payroll tax deduction) before the August recess. U.S. deaths approaching 150k.
U.S. jobless claims and continuing claims data this Thursday.
Central banks are quiet this week; the next Fed policy decision is next Wednesday, July 29th.
What Matters This Week:
The question for agriculture traders this week: Was last week's rally a counter-seasonal blip...or are hedge funds adding length in anticipation of a more structural uptrend?
The macro environment is an important x-factor this week. If crude oil tips over or USD re-strengthens, markets like chicago wheat, soybeans, and bean oil look especially vulnerable from a negative seasonals + bearish structure standpoint.
Watch this week:
Seasonals: Will the strongly negative late-July seasonal trend pull expensive and overbought markets like chicago wheat, soybeans, and bean oil lower?
Macro: Are positive inflation expectations and better overall risk sentiment enough to bring some structural money back into agriculture markets? Watch U.S. stimulus negotiations this week, watch any U.S.-China trade headlines, and watch price action in S&P / Crude / USD.
Chart of the Week: Hedge funds have been on a buying spree over the past month and there are now seven agriculture markets that look expensive and overbought: soybeans, chicago wheat, soybean oil, matif rapeseed, canola seed, feeder cattle, and white sugar.
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