COT: Agriculture longs extend further; Naked gold short at 16-month high

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 13. A week were the Bloomberg Commodity Index rose 1.6% with all sectors apart from precious metals trading higher. The increase in net length was concentrated in Brent crude oil, natural gas, copper, corn and sugar while WTI crude oil, gold soybeans and cocoa saw the bulk of the selling.


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 commodities up until last Tuesday, October 13. A week where a furious rally in big tech helped lift U.S. stocks to the highest in almost six weeks. Also in focus was the ebb and flow of news regarding a fresh round of U.S. stimulus. The S&P 500 rose 4.5%, bond yields held steady, the dollar traded softer while broad buying lifted the Bloomberg Commodity index by 1.6%. 

All sectors with the exception of precious metals rose with the top five being natural gas, HG Copper, cotton, coffee and hogs. The worst performers were gasoline, palladium, and cocoa. Overall hedged funds increased their net long position by 5% to a fresh 30 month high at 2.1 million lots. The buying was concentrated in Brent crude oil, natural gas, copper, corn and sugar while WTI crude oil, gold, soybeans and cocoa saw the bulk of the selling. From a net short in mid-July, the agriculture sector long now accounts for 50% of the total commodity fund long. 

Energy: The sector saw a mixed week with selling of WTI (-9k) on long liquidation being more than offset by a 45% or 37.5k lots jump in the Brent long, primarily due to short-covering. Overall with the price of both contracts stuck in a relative tight range, the combined long at 414k lots was within the range seen for the past six weeks. The biggest change was in natural gas where a 13% rally, driven by production shut-ins during Hurricane Delta, helped drive a 5% increase in the combine net-long in four Henry Hub deliverable futures and swap contracts to 342k lots, the highest since May 2017.

Energy

Metals: Gold’s current struggle to find fresh momentum to break away from $1900/oz, saw funds reduce their net-long by 9% to just 120k lots. A level of bullish bets this low was last seen in June 2019 just before gold began its near 50% ascent. Last week’s change was driven by a 21% jump in naked short positions to 53k lots, again the highest since mid-2019. Silver saw another small reduction in the net long while platinum maintained a small net short.

Funds returned to copper following what turned out to be a shallow 9% correction in early October. The net-long jumped by 15% to 80.5k lots, not far from the late September peak at 87.3k lots which was the highest since early 2018. 

Precious and industrial metals

Agriculture: In grains the combined net long across six soy, corn and wheat contracts reached 627k lots, the highest since April 2014. The change was driven by a 27% jump in the corn long to 171k lots after the USDA in its latest WASDE  report cut its production outlook. Wheat was bought as severe dryness in Russia’s winter wheat belt and in the US Southern Plains threatened the prospect.

In softs, the sugar long surged higher to reach a four-year high at 242k lots. Raw sugar prices reached a seven month high after the temporary hurricane threat in the US and dry weather in Brazil spurred supply concerns. The hurricane threat to cotton fields in the U.S., the world’s top exporter, helped drive the price to a seven-month high and the speculative net long to a two-year high.

Key U.S. crop futures

The managed money position across 13 agriculture commodities rose above 1 million lots to the highest level since May 2014. The top three longs were sugar with a share of 23%, soybeans (21%) and #corn (16%).

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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