Summary: All four major crop contracts have turned lower ahead of today’s WASDE report which undoubtedly is going to provide some additional volatility.
Following one of the most spectacular short-covering rallies on record, US grain and soybean markets are now trading softer ahead of the monthly crop report from the US Department of Agriculture set for release today at 16:00 GMT. The World Agriculture Supply and Demand Estimate, or WASDE, report will provide the markets with the government’s latest estimates for how much output has been lost after months of rains and floods delayed or even cancelled planting across US growing areas.
Last week a small letup in the rain allowed farmers to make a final push to get as much corn in the ground while the progress for later planted soybeans also picked up. Some losses will occur, and today’s report will give us the first clues about the impact on yield, production and stocks at the end of the current 2019-20 season.
A dismal planting season due to heavy rains throughout the US grains belt helped trigger a significant rally during the past month. Corn saw the biggest move due to a combination of a record short positions being held by funds and a record slow planting pace. Soybeans, which can be planted later, have so far been 60% completed and the rally has been less violent than the one that lifted corn due to ongoing Chinese demand concerns.
Wheat, meanwhile, has also turned lower following an initial scare about wet weather damage to the winter crop. The condition of the emerging spring wheat crop has been rated at 81% "good to excellent". Adding to the pressure on wheat have been reports that major competitors led by Russia expecting a significantly higher yield this summer compared with last year's drought-reduced output.
The spectacular race to cut shorts in US grains futures continued in the week to June 4. In just three weeks, funds have bought a record 510k lots of soybeans, wheat and not least corn, with funds having moved from a record short in April to a net-long of 108k lots last week.
All four major crop contracts have turned lower ahead of today’s WASDE report, which is undoubtedly going to provide some additional volatility. This is particularly likely in corn where the recent stampede to get long could trigger some long liquidation should the estimates turn out to be less bullish than expected.
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.
Your browser cannot display this website correctly.
Our website is optimised to be browsed by a system running iOS 9.X and on desktop IE 10 or newer. If you are using an older system or browser, the website may look strange. To improve your experience on our site, please update your browser or system.