x
Breaking News
0

Agriculture Momentum Still Positive

By Saxo Bank Market OverviewMar 11, 2014 11:37AM ET
www.investing.com/analysis/agriculture-momentum-still-positive-205616
Agriculture Momentum Still Positive
By Saxo Bank   |  Mar 11, 2014 11:37AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Agriculture commodities comprise large part of 2014 commodity gains
  • Momentum remains positive as extreme weather supports
  • A possible return of El Niño causing concern
  • Hedge funds very active buyers the past five weeks

Much has been written about the return of positive performances in commodities so far this quarter. From Q2 in 2011 up until the past quarter commodities posted non-stop negative quarterly performances apart from two occasions, the most notable of which was during Q3 2012 when grain prices rallied hard as the US plains dried up. Once again it is the agriculture sector which has been providing much of the gains as extreme weather across some of the major growing regions has caused havoc, most noticeably in North and South America during recent months. According to an article from the Financial Times there could be more trouble ahead after a third official warning in a week from the southern hemisphere is pointing towards a return of the El Niño weather phenomenon.

Using the broad based DJ Commodity sector indices we can see below how the overall positive performance has been driven by the three agriculture commodities with precious metals being the only other sector putting in a double-digit return. The two big growth dependent sectors of energy, and especially industrial metals,have been struggling as recent news from China has put into doubt whether the country accounting for a major share of global commodity demand will be able continue.

DJ Commodity Sector Indices
DJ Commodity Sector Indices


Source: Bloomberg and Saxo Bank

Momentum remains positive across the whole of the agriculture sector and a majority has seen this trend now for more than a month and this has provided handsome returns to trend following strategies. A slowdown in cocoa and cotton last week has now been reversed and both futures are trading at new highs.

Momentum Indicators
Momentum Indicators


Source: Bloomberg and Saxo Bank

The sector is still showing signs of being overstretched with RSI readings being very high, especially on coffee and livestock futures. "The trend is your friend" goes the old saying and at the moment there are still no signs of a reversal while fundamental news continue to support.

RSI Readings
RSI Readings

Hedge funds and other large money managers have increased their net-long exposure to the sector during the past five weeks as each new high triggered another signal to buy. A rise in the net-long from 200,517 contracts to 841,188 contracts in just five weeks may look excessive but we are still some distance from the highs last summer and the aforementioned spike in 2012. One thing however to consider is the risk of bottlenecks occurring should the fundamental outlook change as traders may begin to liquidate some of their recently established longs. This could create more selling pressure than some of these markets can handle. But until such time, if it occurs at all, momentum remains positive and the chart below gives 841,188 reasons to defend that trend.

Net Long Positions
Net Long Positions


Source: Bloomberg and Saxo Bank

Agriculture Momentum Still Positive
 

Related Articles

Agriculture Momentum Still Positive

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

 
Are you sure you want to delete this chart?
 
Write your thoughts here
 
Replace the attached chart with a new chart ?
Post
Post also to:
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
 
Replace the attached chart with a new chart ?
Post 1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email