- A common theme for me this time of year is to remind traders that ag production markets (e.g. Softs, Grains, Etc.) are weather derivatives at heart.
- Recently, we've seen parts of the US Midwest show moderate drought readings, though not enough to slow the pace of noncommercial (fund) selling.
- Looking ahead, if weather grows more favorable it's possible Watson (funds, noncommercial interests) could build a record large net-short futures position in corn.
I’ve talked a number of times over the years about my view of ag production markets as weather derivatives. What do I mean by this? If global investment traders are looking to trade weather, money can be moved into or out of a wide variety of markets where supply and demand are directly influenced by changes in weather patterns, both long-term and short-term. Think back to what we’ve seen over the last couple years, particularly in the Softs sector. Cocoa, sugar, coffee, etc., have taken turns racing to new all-time highs as adverse weather made its way around the globe to key growing areas. A couple months ago I posed the question on Barchart, “Where will real fundamentals turn bullish next?”. Given the response to that piece, the majority was pulling for one of the Grains sector markets, but so far this hasn’t happened. Why? Because of the weather. Naturally.
