Geopolitical risk and weather have been underpinning commodity prices at large since the start of the year. If the Ukraine-Russia tensions would abate certain segments within commodities like Energy, Precious Metals and Agriculture increasingly may face headwinds. Speculative positioning in WTI crude and Brent crude oil is still very high currently and at risk of reversal, according to ING IM. Within Precious Metals already, the trend in non-commercial net length is down. ING IM increased the underweight Gold (to -2). With ETP gold holdings turning South again and other arguments still in place (global cycle pulse, upward real yield pressure, still high non-commercial positioning, leveling off of Chinese physical demand,..) ING IM sees downside in gold prices.
Speculative length in Agriculture also is high, in particular in Corn. Some colder than normal US weather has delayed corn plantings somewhat. With some US weather normalization expected, US corn plantings will likely catch- up. US Corn acreage may be underestimated. ING IM is increasing its underweight to -2 (from -1).
In the background the theme of a developing El Nino weather pattern has been building. Typically El Nino leads to drought in SE Asia/ Australia and excessive rain in Western South America. Australian drought could hurt local wheat production substantially. Chinese demand for US wheat could rise in such a scenario and global and US wheat balances tighten. Soybean prices could also benefit from South American (Brazil) crop losses.
On the other hand, ING IM states that US Corn production typically outperforms under El Nino. By moving Wheat and Soybean to +1 against Corn -2 ING IM introduces some El Nino optionality in its portfolios.
You may access the full report in the attached pdf file.