COT: Agriculture maintains strong fund demand

Ole Hansen

Head of Commodity Strategy

Summary:  The Commitments of Traders report covering commodity positions held and changes made by money managers in the week to August 25. Commodities were mixed with the hurricane threat to the U.S. Gulf coast and dry weather across the mid-West supporting energy, grains and some soft commodities. With the metal sector generally trading lower, the Bloomberg Commodity Index lost 0.6% following the near 4% gain the previous week


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.

This summary highlights futures positions and changes made by speculators such as hedge funds and CTA’s across 24 major commodity futures up until last Tuesday, August 25. A week that saw a continued rally in U.S. stocks with the S&P 500 adding another 1.6%. The dollar rose for a second week while bonds held steady ahead of Fed chair Powell’s speech last Thursday.

Commodities were mixed with the hurricane threat to the U.S. Gulf coast and dry weather across the mid-West supporting energy, grains and some soft commodities. With the metal sector generally trading lower, the Bloomberg Commodity Index lost 0.6% following the near 4% gain the previous week.

Hedge funds increased bullish commodity bets for a tenth consecutive week to 1.7 million lots, the highest since June 2018. Just like in the recent few weeks, it was the continued and growing interest for the agriculture sector that led the advance. With just two exceptions the whole sector saw net buying led by corn, wheat and sugar. Elsewhere the buying interest was focused on gasoline, natural gas and silver while WTI crude oil, gas oil and gold saw net selling.

Energy: The energy sector focus was all about waiting for the impact of tropical storm Laura which hit the U.S. Gulf coast last Thursday as a category four hurricane. Ahead of landfall and captured in this report, gasoline saw strong buying as the risk to key refinery assets grew while WTI crude oil was net sold as shut in production were more than off-set by reduced demand from refineries. Speculators increased the RBOB Gasoline net-long by 18% and natural gas by 4% to 308,323 lots, a near two-year high.

In crude oil the trend seen since June of small WTI net selling and Brent holding steady continued last week. The WTI net long dropped to 326,896, the lowest since May while 4,132 lots of Brent buying held the net within an established range around 200,000 lots. The combined net-long dropped to 535k lots, the lowest since  June as the lack of price movements continued to reduce interest from speculators.  

LatestCrude oil trades steady with the market focus returning to the fragile demand recovery as second waves of Covid-19 continue to emerge. Not least India which reported 78k new cases on Sunday. Chinese PMI edged lower in August but stayed in expansion territory. The aftermath of last week's U.S. hurricanes will be felt for a while with more than 1 million barrels/day of oil production still offline while refineries begin to restart production. WTI is anchored around $43/b while Brent crude remains stuck within a narrowing range defined by the 50-day moving averageat $43.75 and the 200-day at $45.75 (Note: The Brent October contract expires this week). 

Energy

Metals: A correction in the dollar and real yields saw gold drop by 4.5% in the week to August 28. Hedge funds and other large speculators responded to this correction and cut bullish bets by 11% to 138,339 lots, an 11-week low. Silver which lost 6.4% during the week meanwhile managed to attract fresh buyers and short covering resulting in the net long rising by 19% to 37,578 lots.

The HG copper net long reached a fresh 24 month high as speculators used the price correction to cut short position while maintaining their bullish exposure, potentially a sign that copper’s month long rally has further to go.

Latest: Spot Gold (XAUUSD) Spot Silver (XAGUSDstart the week near a two-week high after Fed Chair Powell said nothing last week to hurt the current bullish narrative. Bloomberg reports that the $16 billion Ohio Police and Fire Pension Fund have joined Warren Buffett’s recent move into gold. It has approved a 5% allocation to gold to help diversify and to 'hedge' against inflation. The big question remains how many funds will follow over the coming months, thereby potentially creating an additional layer of support. Renewed weakness in real yields and a softer dollar has helped underpin the markets this Monday with the overall range for gold still between $1900/oz and $2015/oz. Silver meanwhile continues to challenge $28/oz resistance which potentially could see it challenge XAUXAG support at 69.40

HG Copper meanwhile trades back above $3/lb near its highest since mid-2018. This following supporting economic data overnight from China, the world's biggest consumer. The LME in London is closed today due to a U.K. public holiday.  

Precious and industrial metals

Agriculture: During the past ten weeks, the net-position across the 13 agriculture commodities tracked in this report has gone from a 333k lots net-short to the current 491k lots net long. Weather concerns, a weaker dollar, strong Chinese buying as well as the emerging inflation theme have all helped improve prospects for the sector.

Most noticeable has been the grain sector which has seen a counter seasonal build in the combined net-long in soybeans, corn and wheat. Late August has according to recent history been an unusual time for funds to be buying CBOT grains. However, weather worries and strong export demand, especially to China, has been the reason for the change. Through August 20, the U.S. had sold an impressive 35.8 million tons of 1.35 billion bushels of corn and soybeans for export in the 2020/21, most likely an all time record.

Key U.S. crop futures
Soft commodities
What is the Commitments of Traders report?

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.
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