180319 grain M-compressed 180319 grain M-compressed 180319 grain M-compressed

COT: Grain buying accelerates; GBP long jumped ahead of BOE

Picture of Ole Hansen
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, June 20. A week that saw continued gains across the stock market with yields and the dollar trading softer just before several reversals occurred following Fed Chair Powell’s combatant testimony before a US Congress committee last Wednesday. Prior to these comments which triggered corrections across markets, speculators had increased their dollar short, primarily due to record buying of Sterling, while in commodities flows were mixed with buyers concentrating their interest in crude oil, natural gas, sugar, and not least a continued surging grains market.

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 main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA's 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

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

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Commodity Weekly: Selling pressure returns on policy tightening and growth concerns

This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to last Tuesday, June 20. A week that saw continued gains across the stock market with yields and the dollar trading softer just before several reversals occurred following Fed Chair Powell’s combatant testimony before a US Congress committee last Wednesday. In it he described a US economy that is still strong, with inflation running too high, and repeated that most officials think interest rates will need to go higher to tame prices.

Prior to these comments which triggered corrections across markets, speculators had increased their dollar short, primarily due to record buying of Sterling, while in commodities flows were mixed with buyers concentrating their interest in crude oil, natural gas, grains, and sugar.

Commodity sector:

In the week to June 20, the Bloomberg Commodity Index climbed 2.5% with gains seen across all sectors except precious metals where profit taking continued after the latest FOMC meeting signaled a further peak rate delay. Gains were concentrated in energy (3%) and not least the grains market (8.3%) after hot and dry weather raised concerns about this season's production levels of key crops.

Speculators, responding to across-sector gains by lifting their combined net long across 24 major commodity futures by one-quarter to 1.14 million contracts, with the bulk of the increase moving into to grains sector after traders were caught woefully unprepared for the recent strong rally. Elsewhere, length was added to crude oil, gas, copper, and sugar.
Crude oil and fuel products: Strength across the energy sector supported fresh buying of crude oil, especially Brent which accounted for 84% of the 19k contracts of net buying to a combined total of 297k contracts, still within the range seen during the past couple of months. During this time, however, positions have increasingly been moved to Brent (+84k) at the expense of WTI (-53.4k). Elsewhere gas oil buying lifted the net to a two-month high.
Gold, silver and copper: Ahead of Fed Chair Powell’s midweek sucker punch which sent precious metal prices lower, gold length had seen a small weekly increase to 94.6k contracts while silver length was cut by 23% to 11.3k. Copper length continued to be added at the fastest three-week pace since December 2019 - on China stimulus and improved technical outlook focus, resulting in the net long jumping 16.3k to 23.3, highest since January.
Grains: Speculators helped drive a 8.3% weekly gain across the grains sector as they continued to adjust positions after being caught unprepared by the sudden surge. Last week it drove the fastest buying pace since September 2020, the result being a jump in the net long across six major grain and oilseed contracts to 151k contracts, still 72% below the February peak. Buying was led by corn (56k to 58k) and wheat (+29k to -84k).
Softs and livestock: Mixed flows in softs with the sugar net-long rising to a four-month high while profit taking helped reduce length in cocoa, coffee, and cotton.
In forex, mixed flows saw the gross dollar short vs nine IMM futures and the Dollar index rise 59% to $9 billion. Record buying of GBP ahead of the Bank of England meeting lifted the net long to a five-year high. Elsewhere, the JPY short reached a 13-month high, the MXN long a three-year high while selling of EUR extended to a fifth week.

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