Hedge funds are record-long agriculture futures heading into Tuesday's big January WASDE report.

These fund traders are confidently long ags on a combination of supportive fundamental (strong cash markets) and non-fundamental (#reflation flows) price drivers.

Bearish WASDE data (e.g., higher stock estimates) and/or a stronger USD are the biggest threats to funds' massive long positions this week.

Macro:

The macro environment is downgraded to a neutral trading input for agriculture futures today due to the recent strength in the U.S. dollar. The Euro, gold, and bitcoin are all getting pressured lower today.

This week investors will focus on U.S. political volatility, potential impeachment proceedings, and rising Covid cases. Biden's inauguration is on January 20th, next Wednesday.

This week we see U.S. inflation data as 'live' inflation metrics are testing 2.5-year highs:

• Wednesday: CPI Inflation data (exp. +0.4% m/m)

• Thursday: U.S. jobless claims, Fed Chair Powell speaks

• Friday: U.S. Retail Sales, PPI Inflation data

Fund Positioning:

Friday's COT positioning report showed a new record net long position for non-commercial traders at +1,067,077 contracts. Funds are record long corn and record long across the grain markets.

This record-long fund positioning will be a bearish trading input at some point, but today strong cash markets, bullish January seasonals, and investor #reflation flows are keeping funds confidently long ag futures.

Seasonals:

Price seasonals are broadly positive in January before turning more bearish in February.

Questions This Week:

With funds record long, what could be the catalyst that drives funds to liquidate?

The most likely catalyst for fund selling this week is around the WASDE, either on better yields, higher stock estimates, or simply a 'sell the fact' reaction after Tuesday's data comes out. Funds know that the window is closing on SA weather risks - the calendar is not their friend.

When do seasonals turn bearish? When do investors stop focusing on reflation trades?

Seasonals start to turn after next week. February seasonals are firmly negative *and* fund selling started in early February 2011...the closest analogue flow period to today.

Could the macro environment drive funds to liquidate?

Yes, especially after we get through the big WASDE report. Watch the U.S. dollar and watch CPI / PPI inflation data this week.

Chart of the Week: Tuesday brings the big January USDA WASDE agriculture report. Hedge funds are going into the report record-long agriculture futures, emboldened by strong cash markets and January #reflation flows.

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