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COT: The grains sector flip to a net short during a week of accelerated long liquidation
Ole Hansen
Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, May 2. A week that saw hedge funds accelerate the recent pace of commodities long liquidation with particular focus on energy and grains. Hardest hit were crude oil, diesel, corn, soybeans and sugar with the most notable exceptions being gold and silver. In forex, the dollar short was unchanged with continued buying of euros being offset by selling of the commodity currencies.
Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities while in forex we use the broader measure called non-commercial.
What is the Commitments of Traders report?
The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.
Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)
The reasons why we focus primarily on the behavior of the highlighted groups are:
- 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
Global Market Quick Take Europe
Saxo Market Call Daily Podcast
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, May 2. A relatively calm week in financial markets saw stocks trade higher despite continued concerns about the health of US regional banks while bonds and the dollar traded steadily. Hedge funds’ exit from commodities accelerated driven by heavy selling of crude oil and diesel as well as key crops led by corn.
Commodity sector:
The Bloomberg Commodity Index, which tracks a basket of major commodity futures spread evenly between energy, metals and agriculture, continued lower for a second week with losses in energy, grains and softs being only partly offset by continued gains in precious metals. The weakness saw hedge funds exit long positions at an accelerated pace with the combined net long across the 24 futures markets tracked in this slumping by one-third to 700k lots, the lowest conviction in higher commodity prices since June 2020 when the market was dealing with the global pandemic and widespread lockdowns leading to a slump in demand for key commodities.Hardest hit, as per the table below, were crude oil, diesel, corn, soybeans and sugar with the most notable exceptions being gold, silver and livestock.
Crude oil and diesel: A nightmare two-month period for momentum traders continued in the week to May 2 when a 7% collapse in the price of Brent and WTI forced traders out of recently established longs (-62.6k lots) while driving an increase in short positions (+42.7k). Overall, these changes drove a 25% reduction in the combined net long to 295k lots, a five-week low. Since March during which time the crude oil market has been dealing with a banking crisis, a surprise OPEC+ production cut driving a spike and subsequent focus on gap closing, and fresh demand concerns, speculators have responded by selling 393k lots and buying 213k, the bulk of these at unprofitable levels.
The three fuel product futures also saw net selling, with the ICE gasoil (diesel) contract the hardest hit as traders increased the net short to a +7-year high at 32.5k lots.
Gold and silver: In gold, three weeks of light long liquidation was fully reversed last week after traders increased their net long by 11% to 147.8k lots, a fresh 13-month high. With the increase primarily being driven by fresh longs, as opposed to short covering, the long-short ratio reached a three-year high at 7.1 long per short position. The value-weighted average gold futures price (VWAP) during the latest reporting week was $2002.50, highlighting the level below which recently established longs may begin to exit their positions. Silver traders increased their net long by a moderate 8% to 27.1k lots, still below the December peak at 30.2k lots.
HG Copper: The HG copper short jumped 49% to 15.7k lots in a week that saw the price challenge but hold key support in the $3.80 per pound area. The VWAP for the period ended up at $3.88 per pound and with the current price around $3.94 the bulk of these recently established short positions are now underwater, thereby supporting the current recovery.
Grain and oilseeds: During a week marked by accelerated long liquidation, the grains sector has shifted to a net short position for the first time since August 2020, driven by continued price weakness as seen through the drop to a fifteen-month low in the Bloomberg Commodity Grain index. All six contracts saw net selling led by corn and soybeans. Ahead of a 10% bounce towards the end of last week, the CBOT wheat short reached a fresh five-year high.
Softs: Heavy selling of grains helped trigger some moderate profit taking and net selling across softs, a sector that in recent months has seen strong demand amid an outlook for tightening markets, led by sugar and coffee.
Forex
In forex, speculators held an unchanged gross dollar short of $11.6 billion versus nine IMM futures contracts and the Dollar index. Buying of EUR, BRL and CHF being offset by selling of GBP, CAD and AUD, the latter two being driven by the weakness seen across the commodity sector. Most noteworthy position, by far, remains the euro long which following weeks of continued buying reached an October 2020 high at 173.5k lots, the equivalent of €21.7 billion.
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