COT: Speculators hold record commodity long into 2021

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights positions and changes made by speculators such as hedge funds and CTA's across commodities, forex, bonds and stock index futures and options up until last Tuesday, December 29. A general quiet holiday impacted week which nevertheless saw speculators increase bullish commodity bets to a record 2.5 million lots representing a nominal value of $125 billion.


Saxo Bank publishes 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 positions and changes made by speculators such as hedge funds and CTA's across commodities, forex, bonds and stock index futures and options up until last Tuesday, December 29. A general quiet holiday impacted week, which nevertheless saw speculators increase bullish commodity bets to a record 2.5 million lots representing a nominal value of $125 billion.

Commodities

The Bloomberg Commodity Index traded higher by 0.7% higher during the reporting week thereby supporting a strong yearend finish for the commodity sector. A sector which took a 26% pandemic-led hit during the first quarter before spending the belly part slowly recovering before sprinting into yearend on vaccine optimism, a weaker dollar and emerging focus on reflation trades. 

These developments have all helped create a much improved environment for a sector which has not been part of the strong rally seen across other asset classes during the past decade. From an investment perspective and using the Bloomberg Commodity Total Return Index, the sector suffered a 64% slump between the 2011 peak up until the low point last March, which for the index was the lowest in more than 20 years. 

Speculators have responded very forcefully to the improved sentiment during the past six month and as we enter 2021 they hold a total net long across 24 major commodity futures of 2.5 million lots, representing a nominal value of $125 billion. While the two previous peaks in 2017 and 2018 were primarily led by the crude oil market, the chart below shows how bullish bets have been spread out more evenly between the three major sectors of energy, metals and agriculture.

Most of last week's buying occurred within the grains sector with several positions reaching multi-year highs. Not least corn where the net-long jumped by 25% to 332k lots, the highest since August 2012. Overall, the biggest bets are held in crude oil with the combined 614k lots long in WTI and Brent representing a nominal value of $30 billion, gold's 137k lots long at a value of $26 billion and finally the soybean complex where the net-long in soybeans, meal and oil reached 399k lots or $19 billion nominal. 

The net-long in crude oil and gold, the two biggest contracts in terms of exposure, remains well below their previous peaks which for crude oil was 1.1 million lots reached in March 2018 and 292k lots in gold that was reached in September 2019. 

Forex

Despite general dollar weakness during the week, as risk appetite ran wild across most asset classes, speculators made a small 1% reduction in their overall bearish dollar bets against ten IMM currency futures and the Dollar Index. Buying of JPY, MXN and especially CAD were more more than offset by selling of EUR, GBP, AUD and NZD. 

As 2021 begins, the main focus from a dollar bearish perspective is focused on long positions in the euro at 143k lots or $22 billion equivalent and the Japanese yen at 47k lots or $5.7 billion while short positions are only held in AUD and NZD.

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

 

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