COT: Renewed rotation into grains out of energy and metals

Ole Hansen

Head of Commodity Strategy

Summary:  This summary highlights futures and options positions and changes made by speculators such as hedge funds and CTA's across 24 commodities up until last Tuesday, October 27. A relatively quiet week that saw a continuation of the rotation out of energy and metals into the agriculture sector. The cut off date for this report however, occurred just before safe-haven dollar strength helped send all but a few commodities lower.


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.

NOTE: Due to technical issues there will be no attachment to this report. 

This summary highlights futures positions and changes made by speculators such as hedge funds and CTA’s across 24 commodities up until last Tuesday, October 27. 

A reporting period that signaled the beginning of a tough week for global markets caused by growing coronavirus cases leading to renewed lockdowns in Europe, U.S. stimulus efforts being postponed and jitters ahead Tuesday’s U.S. election. In the week to last Tuesday, the S&P 500 lost 1.5% before lackluster tech results triggered the worst weekly rout since March. The dollar was steady, bonds ticked higher while the Bloomberg Commodity Index lost 0.5%.

A near unchanged net-long position across 24 major commodity futures at 2.3 million, the highest since February 2017, disguised a renewed rotation out of energy and metals into agriculture. Biggest reductions were seen in WTI crude oil, natural gas and live cattle while most of the buying was concentrated in corn, soybean oil and sugar.

Given the accelerated sell-off seen across most commodity markets following the end of the reporting week last Tuesday, we are not going into much details in this update. As per the graph below, all but a few commodities traded lower after Tuesday. The grain sector was not surprisingly also hit by profit taking following a rapid buildup in long positions in recent weeks on the back of strong underlying fundamental support. It highlights the risk that we may enter an immediate future where investors are more concerned about capital preservation than capital gains.

Energy: The week saw net selling of crude oil and fuel as the fundamental outlook began to deteriorate. Traders meanwhile booked some profit into an ongoing rally. 

Latest: Brent crude oil (OILUKJAN21) and WTI crude oil (OILUSDEC20) - trade near a five-month low on renewed weakness driven by a combination of coronavirus related lockdowns hurting demand and a continued surge in Libya’s production, now at 800k barrels/day from 100k barrels/day in early September and targeting 1.3 million barrels/day by the beginning of 2021. These latest developments are likely to keep oil under pressure with the recovery in global oil demand being pushed further out into the future. Brent crude is currently targeting $35/b, the 38.2% retracement of the April to August rally.

Energy

Metals: A relatively quiet week in precious metals ahead of last Wednesday when gold and silver both broke lower as the dollar strengthened. Small profit taking was seen in gold and copper with fresh buying seen in silver and not least platinum where the position flipped back to a net long. 

Precious and industrial metals

Agriculture: In grains the combined net long in soybeans, corn and wheat extended to 558,000 lots, a fresh eight-year high.  Corn in particular was left exposed to the wave of profit taking that followed. The 4.2% drop in corn after the reporting week had ended last Tuesday, came just after speculators had increased their net long exposure by 26% to 276k lots. 

Key U.S. crop futures

Just like corn, sugar was the contract among the  soft commodities that was left exposed to the wave of profit taking that occurred after last Tuesday. Before that happened, the net long had reached a new two-year high at 263k lots. The coffee long was cut by 40% as demand for the bean continues to suffer amid the pandemic's impact on consumer behavior. 

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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