Hedge funds have been on a buying spree in agriculture futures.

Funds have bought agriculture futures in seven of the last eight weeks and this weekend's COT positioning report showed +232k contracts of hedge fund buying, the largest aggregate inflow week since January 2018. 

Hedge funds are now the longest they've been in two years, with extreme long positioning in soybeans (second largest inflows on record last week), canola seed (near record long), and robusta coffee (longest in three years). There are now eleven markets that look expensive & overbought versus data from the past 24 months (chart of the week below). 

This stretched positioning looks increasingly vulnerable given negative seasonal pressure in late August and September (especially for oilseeds) and as the macro environment is showing a few cracks: stronger USD, weaker BRL, crude oil settling lower.

Macro focus this week is on the Fed Annual Symposium and Republican convention:

Monday: Fed's annual Economic Symposium begins (normally held at Jackson Hole), Republican national convention kicks off in Charlotte and Washington DC.

Thursday: Jobless claims data (exp +1.0mm) and continuing claims (exp 14.4mm), Powell speaks on the Fed's policy framework, Trump speaks from the White House. 

Markets are trading with a mixed tone this morning after Trump's announcement that the FDA has approved convalescent blood plasma as a Covid-19 treatment. 

What matters this week:

Funds are extended long, seasonals are negative, and the macro environment is losing some shine. This is a bearish combination of trading inputs looking forward.

The question for agriculture traders this week: Can speculation around midwest crop damage and strong China demand keep grains and oilseed markets propped up against the weight of extended positioning, negative seasonals, and a less-rosy macro?

As a reminder, the seasonal low for corn is Aug 29th (this Saturday), chicago wheat Sep 2nd (next Wednesday), and soybeans Sep 27th.  

Watch this week:

There isn't much data on the calendar this week; watch how the U.S. dollar reacts to Powell's comments on Thursday and watch price action in BRL and crude oil.

Also watch if funds (including long CTA momentum traders) start to take chips off the table, giving the late-August and early-Sep negative seasonal trend some traction.

Chart of the Week: Hedge funds have been on a buying spree in agriculture futures and today eleven agriculture markets look expensive and overbought versus data from the past 24 months.

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