The sharp slide in agricultural commodity prices this year has squeezed long trades, with net non-commercial futures positioning in corn now close to neutral (bottom-left chart). Corn has suffered the most precipitous drop, with high planting rates driving futures prices down 24% from the YTD high. Although corn is the underperformer, prices of the most important agricultural products have also dropped significantly this year (bottom-right chart).

With the market narrative still focused on disinflation and even deflationary pressures in developed markets, a re-emergence of supply-side inflationary pressure from commodity prices would catch the market off-guard. In addition to the increased frequency of extreme weather events that can disrupt supplies, the recent global trade war poses an additional risk to the agriculture sector given that (politically sensitive) farmers are a key target for bilateral tariffs.

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Source: Bloomberg, Macrobond, Variant Perception