Note: This is the final ‘Ag Markets This Week’ post - if you’d like to continue receiving this weekly write-up going forward, ping us for a trial: insight@peaktradingresearch.com.

Big Picture Ag Price Drivers:

• Hedge funds remain extended-long agriculture futures, ~+900k contracts net long today.

• Seasonals are mixed this week, then turn firmly negative in February and March.

• Neutral macro: Inflation up and stocks rallying vs crude softer and USD firm.

• Mix fundamentals: Export sales, cash markets, and curve inverses remain firm (bullish ags) vs SA weather is improved as Brazil ramps up harvest (bearish ags).

Macro:

The macroeconomic environment is a neutral trading input for agriculture futures today. Inflation expectations remain firm at 8yr highs ~2.20% (good for ags), but energy markets are softer and the U.S. dollar is gaining versus CNY, RUB, and BRL (bad for ags).

It's a big week for Q4 corporate earnings and the data calendar includes an FOMC meeting and U.S. GDP, both big U.S. dollar drivers:

• Wednesday: FOMC rate decision, Fed Chair Powell Press Conference

• Thursday: U.S. Q4 GDP (exp. +4.2%), jobless claims data

Fund Positioning:

Funds still hold massive long positions across the agriculture complex, even after some modest position trimming through the end of last week. The most 'expensive & overbought' markets across the ag complex are now spring wheat, kansas wheat, and corn.

Seasonals:

This week marks a big seasonal inflection point for agriculture futures. Early-January #reflation flows are now behind us and seasonals are firmly negative in February and March.

Most Relevant Question This Week:

Funds trimmed long positions last week - what catalysts could make funds cover more?

1.) U.S. dollar strength. The dollar is gaining against important ag-correlated currencies like BRL, RUB, and CNY. Watch how the dollar moves this week, especially around the FOMC & U.S. GDP. The dollar matters - chart of the week below.

2.) Seasonal traction. Seasonals turn sharply negative in February and March. Overbought markets like kansas wheat, sugar no. 11, and arabica coffee look most vulnerable...all of these markets look 'expensive and overbought' today.

3.) Changes to the bullish fundamental narrative. Better weather and the Brazil harvest countdown are negative drivers. When will end-users step in to buy? How will cash respond to the lower board?

Final Chart of the Week: A weak U.S. dollar has been a massive positive tailwind for agriculture commodity prices over the past nine months. This week brings two big U.S. dollar catalysts: FOMC comments Wednesday and U.S. GDP data Thursday.