Ag Markets July 6, 2020
Agriculture traders see negative price seasonals versus a positive macro environment coming into this week, ahead of Friday's big WASDE U.S. production & demand report.
Seasonals:
Price seasonals are a strongly negative trading input for agriculture futures in July.
These are the weeks when agriculture traders gain more confidence around summer weather and quickly remove the production risk premium from U.S. futures prices.
Prices tend to drop sharply after the July 4th holiday; Peak’s normalized seasonality charts point sharply downward for most grains and oilseed markets (chart of the week below).
Macro:
The macroeconomic environment is upgraded to a positive trading input for ag futures.
Over the past week China sentiment has improved (A-shares up, CNYfx up), energy markets are stronger (crude ~$43/barrel), and inflation expectations have risen...all good things for agriculture markets.
Investors are weighing solid U.S. NFP employment numbers and great China data versus the negative impact of accelerating Covid-19 cases.
There isn't much data on the calendar this week. Q2 earnings season ramps up for the big U.S. banks next week.
The CFTC's COT positioning report comes out later today at 21:30 GVA, 4:30pm Chicago. This will be an interesting one: the data covers the June 30th stocks report rally in grains and oilseeds.
What Matters This Week:
The question for agriculture traders this week: For how long can the upgraded macro mood keep pushing agriculture futures higher against the strongly negative seasonal trend?
China data has improved, and China's U.S. corn and soybean buying are fundamental positives...but at what point do ag traders decide that the U.S. production window has closed and start trading burdensome balance sheets?
If you're long futures today and playing for higher prices in corn, wheat (the most seasonally accurate market of 2020), and soybeans, the calendar is not your friend. Grain and oilseed prices will likely be lower by October 1st...it's all about timing the turn.
Watch this week:
Seasonals: Ag markets got their late-June seasonal bounce, how quickly will the strongly negative July trend gain traction?
Macro: Can risk assets maintain escape velocity versus the gravity of more Covid-19 cases? Data is light this week, price action matters: watch China markets, watch crude, watch USD.
Today's holiday-delayed COT report. How much did funds cover last week? Did corn shorts get washed out? How long are funds in soybeans?
Chart of the Week: Grain and oilseed prices tend to drop sharply in July. We’ve seen this trend over the past ten years and last year, 2019, was no exception.
For a trial of our industry-leading agriculture research, reach out to us: insight@peaktradingresearch.com.
