Summary

Algorithmic Speculative Funds bullish positioning on the agricultural markets is at the highest level for the last two years. Last week appears to be the culmination of what has been building up for several weeks now. The likes of Sugar, Soybean, Corn and Soymeal have all defied resistance pushing to higher levels. Wheat and Sugar were laggards with Spec Funds betting on the short side of those commodities but even they turned up last week. The real story of the week was Soymeal that lead the way pulling the agricultural commodity sector with it.

According to data from the CFTC, managed money saw an increase of more than 64K contracts to its net long position in futures and options in the main 13 US traded agricultural commodities in the week through last Tuesday. The increase brought the net long position level to 681.515K contracts which is the highest level reached since June 2014.

Amidst growing speculation the US equity markets were nearing resistance and with concern that the Fed was looking to increase rates possibly as early as the upcoming June meeting, Managed Funds sentiment moved back to commodities. Additionally, expectations of agricultural oversupply has been subsiding because of weather events across the globe. We have had flooding in Texas and in France. In South America both Brazil and Argentina have had detrimental dryness and rain respectively. Brazil has been forced to import Corn. Argentina’s Soybean harvest is finishing up soon. The market’s focus should turn away from South America and more heavily toward the US where potentially volatile weather could keep prices jumping for a little while longer.

According to the CFTC, hedge funds pushed their net long on Chicago Soymeal futures and options position levels above 75K contracts. This is the 1st time in two years that it reached that level. At the same time their net long position in Soybeans was the most bullish since September 2012. In short, if you are a producer, this is a great time to get serious about sales and your marketing plan.

Sustained rallies need fuel in order to stay alive. Weather events across the globe have aided in curbing supply expectations recently. There is still uncertainty as to whether or not the Soybean news in general will prove bearish or bullish in coming weeks.

Additional big news last week was the jobs report released by the Bureau of Labor and Statistics. According to the report the US added 38K jobs in May 2016. That is the fewest number of jobs added in a month since 2010. The so called “official” unemployment number went from 5% to 4.7% but the devil is in the details. Have a look at the Bureau of Labor Statistics site (http://www.bls.gov/news.release/empsit.t15.htm) and you will find that the total unemployment with ‘all the persons’ that the bureau removed to make the numbers look better rests at 9.7% (unchanged from last month). Also, this 9.7% is potential just the tip of the iceberg when the true census of the nation is accounted for.

The jobs report sent stock prices down upon release with sentiment that the Fed’s justification for raising rates was in jeopardy. That day Crude Oil prices eased as did the US Dollar and metals found strength. We get knee jerk reactions to news reports but the grand picture is that the US economy is struggling. At the same time the government is doing everything in its power to keep the system afloat. The question begs to be asked if it is worth keeping the system afloat. On the flip side, failing to keep the system afloat may bring consequences that none of us want to see.