Dave Whitcomb
CFA
Head of Research
Peak Trading Research

The past three years have kept agricultural prices under pressure—large crops, cheap cash markets and comfortable balance sheets left 2025 on a bearish note and squeezed producer margins. But as 2026 begins, the setup is shifting: a weather-sensitive window lies ahead, speculators remain heavily short, seasonals favor higher volatility, and macro conditions look more supportive for real assets. Higher prices are not guaranteed, yet the coming months may finally open a path to recovery as risk premia rebuild and funds return to agricultural futures.

2025 marked a third consecutive year of negative returns for the global agriculture sector. The Bloomberg Agriculture Index declined 6.3% on the year, extending a prolonged period of underperformance across grains, oilseeds, and cotton markets. Losses were broad-based (livestock markets were a rare exception), reflecting a market environment shaped by abundant supply and relatively modest demand growth.

The drivers were largely fundamental. South American production continued to expand, the U.S. grew big crops, global cash markets remained well supplied, and balance sheets across most major agricultural commodities stayed historically comfortable. With ample inventories available and little urgency from end users, prices struggled to gain traction despite periodic weather scares and brief windows of geopolitical volatility.

Importers were able to source supplies easily, exporters competed aggressively for market share, and futures markets were left without a sustained demand-side catalyst. While lower agricultural prices helped ease food inflation and supported central banks’ disinflation efforts, producers paid the price, particularly farmers facing rising input costs and ongoing trade uncertainty.

As the calendar turns toward 2026, however, the balance of risks is beginning to shift. Speculators are underinvested in our markets. It’s a risky time of year when prices tend to rise. And many financial institutions see solid global growth and more dovish central banks in 2026, which means commodity risk premia may begin to rebuild after several years of compression. For farmers, this offers cautious optimism for higher agriculture prices ahead.

FUNDAMENTALS: A DELICATE WEATHER WINDOW STILL AHEAD

Although balance sheets remain comfortable today, the global production cycle rolls on and a significant portion of Southern Hemisphere supply risk still lies ahead; the coming months represent one of the most weather-sensitive periods of the year for agricultural markets.

Although Brazil’s weather has so far been great and the market has grown increasingly confident in a very large Brazilian crop – with production estimates coalescing around 180 million metric tons of soybeans - the weather story does not end with Brazil’s early harvest. 

Argentina’s soybean and corn crops have a longer runway ahead, and attention will soon turn to Brazil’s safrinha corn crop, which is planted immediately after soybean harvest and remains especially vulnerable to late-season weather disruptions. Production risks tied to Argentina and safrinha corn extend well into the first quarter and continue to carry outsized global importance.

Later in Q2 as near-term South American weather risk fades, attention will shift back toward Northern Hemisphere balance sheets, particularly in the United States and the Black Sea region. Production estimates and early indications of feed and export demand will help set the baseline for the remainder of the crop year. Corn demand in the United States is strong and remains one of the few fundamental pillars of support for the U.S. agriculture complex – we’ll find out over the coming months if that trend continues.

POSITIONING: HEDGE FUNDS ARE LEAN AND VULNERABLE

From a non-fundamental perspective, speculative positioning offers a clear source of upside risk. Hedge funds spent much of the second half of 2025 reducing exposure to agriculture, selling rallies and cutting risk into year-end. 

As a result, speculative length across agricultural futures is relatively light, and in dollar terms hedge funds have entered 2026 with a net *short* position of roughly $3.0B. This creates asymmetry. With relatively large short positions and limited length already in place, prices can quickly accelerate higher, particularly in thinly traded agricultural markets.

This positioning asymmetry stands out in a broader market environment where institutional investors are increasingly focused on under-owned assets, dispersion, and asymmetric return profiles. If weather concerns intensify or the macro backdrop improves, funds have ample room to rebuild exposure, and even modest reallocation could have an outsized price impact. Our markets are small and the macro matters. 

SEASONALS: EARLY-YEAR RISK IS FRESH IN TRADERS’ MINDS

Seasonality also argues for improved price performance in early 2026. January-May is historically one of the riskiest periods of the year for commodity markets, as traders navigate South American weather uncertainty and begin pricing Northern Hemisphere planting risk.

These risks are well remembered. Traders recall the U.S. prevent-plant rally in 2019 following excessive Midwest rainfall, Brazil’s safrinha drought in 2021, Argentina’s severe drought in early 2023, and concerns over excessively wet conditions in the eastern Corn Belt during the first half of 2025. Beyond weather, the Russia–Ukraine war erupted in February 2022, delivering one of the most disruptive commodity shocks in recent memory.

For many participants, these episodes reinforce a simple reality: the opening months of the calendar year have repeatedly delivered market-moving events. This seasonal tendency is reinforced by a macro backdrop that favors higher volatility and rising risk premia rather than complacency. These are risky months, prices can pop.

INVESTOR SENTIMENT: MACRO TAILWINDS MAY RE-EMERGE

The broader macro environment may also turn more supportive. Investors increasingly expect central banks to shift toward a more dovish stance heading into 2026 as inflation pressures stabilize.

Across major banks and asset managers, the prevailing macro view for 2026 centers on resilient growth, gradual monetary easing, elevated geopolitical and policy uncertainty, and strong capital spending tied to energy and infrastructure. This mix helped fuel strong rallies in metals and other risk-sensitive assets late last year. Agriculture has largely been left behind, but it would not take much capital rotation for some of that interest to spill into agricultural futures, particularly if inflation hedging regains relevance.

Recent geopolitical developments in Venezuela have served as a reminder that markets remain vulnerable to sudden policy and diplomatic shocks. While not every event produces an immediate price response, history suggests that periods of apparent calm can quickly give way to upside volatility across commodity markets when uncertainty re-emerges.

When macro sentiment improves, capital tends to move quickly and broadly. Agriculture does not need to lead the move to benefit from it. Although agriculture markets lagged in 2025, the broader Bloomberg Commodity Index rallied +11.1%, its best year since 2022. Investors like owning commodities…just not yet agriculture commodities.

KEY TAKEAWAY FOR 2026

Fundamentals have generally pointed toward lower prices over the past three years, and 2025 ended on a bearish note for agricultural markets. Large crops, cheap global cash prices, and ample balance sheets weighed heavily on prices and producer margins.

Yet as 2026 begins, the risk profile is changing. A sensitive global weather window lies ahead, speculative positioning remains stretched to the short side, seasonal patterns favor higher volatility, and the macro backdrop appears increasingly supportive of real assets and inflation hedges.

For producers and farmers, this does not guarantee higher prices - but it does suggest that the coming months may finally offer opportunities for recovery as risk returns to the market and hedge funds find reasons to rebuild exposure and buy agricultural futures.