Ag Markets September 21, 2020
Hedge fund positioning is the most notable non-fundamental red flag for agriculture prices today. Non-commercial traders have a net long position of +680k contracts across the ag complex...the longest since February 2017.
Over the past five years, the CFTC's weekly COT positioning reports have shown funds this long only five other times: one week in February 2017 and four weeks in June 2016 (chart of week below).
Price seasonals cross an important inflection point at the end of September and turn more bullish into October. The big caveat: oilseed markets have seen a fundamentally-driven counter-seasonal rally in September. Seasonals feel broken for soybeans today after a great 2019 and solid start to 2020.
The macro environment is a neutral trading input for ag futures today. The focus this week is on Fed chair Jerome Powell's testimonies, esp his comments on stimulus and inflation targeting.
Tuesday: Powell testifies on the CARES Act before the House Financial Services Committee.
Thursday: Powell testifies before the Senate Banking Committee + U.S. jobless claims and continuing claims data (trending lower) + U.S. home sales.
The question for agriculture traders this week:
Can strong Chinese exports keep big fund longs engaged and keep fund shorts disinterested? Will ramped up U.S. harvest and farmer selling be catalysts that put a cap on this rally?
Watch this week:
On the fundamental side, watch the pace of China sales versus improved South American precipitation and signs of farmer selling.
Macro focus is on Powell's testimonies and direction for the U.S. dollar and inflation expectations. Brazilian real dropped on Friday (bad for ags) - keep a close eye on currency moves this week.
Chart of the Week: Hedge funds are LONG agriculture futures and playing for higher prices on the back of strong Chinese exports and lower U.S. production. Of the 261 weekly government COT positioning reports of the past five years, only five have shown funds longer than today.
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