COT update: JPY shorts rose ahead of intervention; rotation into energy and grains continued

Commodities

In the latest COT reporting week to 28 April, the Bloomberg Commodity Index rose a strong 3.2%, with renewed strength in crude oil and fuel products feeding into another week of gains across grains through the biofuel link. Weather-related crop concerns and the fertiliser crisis added further support, underpinning the ongoing rotation into energy, grains and selected softs, while mixed metals flows were mostly geared towards continued selling.

In crude oil, an 11% price jump lifted the combined net long by 10k to 492k contracts, still below the March peak at 554k. The bulk of the exposure, 383k contracts, was held in Brent, the global benchmark. In natural gas, continued selling pressure cut the net long in half, leaving it near neutral at 11.6k contracts.

In metals, the gold net long was cut to a fresh two-year low at 91.6k contracts. Silver saw a tentative amount of fresh buying, while the copper net long rose for a third week to 60.8k contracts, a 70% increase over the period.

In grains, the combined net long across the six Chicago-traded soy and grain contracts jumped to a fresh four-year high and the highest seasonal level since the CFTC began collecting grains data back in 2006. Buying was led by corn and wheat, with the latter reaching an 11k net long after managed money accounts had, until recently, traded the contract from the short side for almost four years amid ample supply and a contango structure favouring short holders. The one-year contango remains elevated at 12%, helping explain why speculators have not rushed into a contract that is already up around 25% year-to-date.

Elsewhere, buyers returned to sugar following a recent short-selling rush. The cocoa net short reached its highest level since November 2022 at 20k contracts, while uninterrupted buying of cotton extended into an eighth week, lifting the net long to a two-year high. In livestock, a fresh record high in live cattle futures at USD 2.56 per pound supported an elevated net long at 137k contracts.

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.