COT: Commodities see demand for metals and agriculture
Head of Commodity Strategy
Summary: Hedge funds turned net buyers of commodities for the first time in five weeks in the week to March 24. Overall the asset class saw mixed reactions to the developing shocks currently impacting both supply and not least demand. Most in demand were natural gas, gold, wheat and soybeans while the selling hit Brent crude oil, silver, corn and the two soft commodities of sugar and cocoa.
Saxo Bank publishes two weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial.
The below summary highlights futures positions and changes made by hedge funds across 24 major commodity futures up until last Tuesday, March 24. During this period the dash-for-cash phenomenon slowed and individual commodities began reaction to the shocks currently hitting both supply and demand.
Funds increased bullish bets for the first time in five weeks by 36% to 361k lots. In demand were natural gas, soybeans, wheat and coffee while selling hit Brent, silver, corn, sugar and cocoa.
Despite suffering another week of steep price losses, the energy sector only saw modest changes. WTI crude oil was bought for a third week to the tune of 7k lots while selling of Brent crude oil extended to a fourth week. The selling of 21k lots took the net-long to just 57k lots, the lowest since November 2014. Overall the combined net-long reached 187k lots, a near 8 year low. While the WTI crude oil position has risen by 7k lots during the past four weeks, Brent has seen its net-long tank by 231k lots.
This divergence is however likely to correct as the US become the epicenter of the corona virus outbreak. With that demand will suffer and stocks rise. Up until now Brent crude oil, the global benchmark, has been the contract used to reflect the negative price impact of a Saudi price war, slump in demand and spike in stocks.
Natural gas saw continued buying with the net-short having been cut by 88% during the past six weeks. All of this happening while the price continues to linger near the lowest level in almost 25 years.
The dramatic squeeze in the gold basis between the OTC spot priced in London and the COMEX futures in New York was captured in the data last week. Despite rallying by close to 9% the net-long only rose by 13% to 200k lots. Most pronounced was the collapse in the gross short positions to just 2,190 lots, a ten-year low.
Silver’s net-long was cut by 35% in a delayed reaction to the near 30% price slump in the previous reporting week. Bearish HG copper bets was cut by 36% as short covering started to emerge after the price found support at $2/lb
CBOT Wheat and Arabica coffee, two of the best performing commodities, both saw strong buying as the prices jumped 12.5% and 22.4%. Both however were primarily driven by short-covering and it highlights a current unwillingness to add exposure. Cotton, a major looser as clothes stores remain closed around the world, was sold while the unwinding of long cocoa bets finished after the net position hit neural and the price looked for support at $2200/t. The soymeal net-long jumped 143% as a Chinese soy meal shortage for its livestock industry supported a short-term bullish outlook. Sugar and corn both sold in response to lower demand from ethanol producers as crude oil slumps and fuel stocks rise.
The Commitments of Traders (COT) report is issued by the US Commodity Futures Trading Commission (CFTC) every Friday at 15:30 EST with data from the week ending the previous Tuesday. The report breaks down the open interest across major futures markets from bonds, stock index, currencies and commodities. The ICE Futures Europe Exchange issues a similar report, also on Fridays, covering Brent crude oil and gas oil.
In commodities, the open interest is broken into the following categories: Producer/Merchant/Processor/User; Swap Dealers; Managed Money and other.
In financials the categories are Dealer/Intermediary; Asset Manager/Institutional; Managed Money and other.
Our focus is primarily on the behaviour of Managed Money traders such as commodity trading advisors (CTA), commodity pool operators (CPO), and unregistered funds.
They are likely to have tight stops and no underlying exposure that is being hedged. This makes them most reactive to changes in fundamental or technical price developments. It provides views about major trends but also helps to decipher when a reversal is looming.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.