Head of Commodity Strategy, Saxo Bank Group
Summary: Hedge funds increased bullish commodity bets for the first time in three weeks. The 51% jump in the net-long to 463k lots came in response to broad-based price gains across all of the major sectors. The buying was centered around crude oil, gasoline, gold, soybeans, sugar and livestock.
To download your copy of the Commitment of Traders: Commodity report for the week ending March 19, click here
The agriculture sector saw nine out of 14 futures contract being bought. The sector, as we wrote last week, was increasingly exposed to short-covering after bearish bets reached a record in recent weeks. These developments highlight why we primarily focus on the positions held by leveraged money or hedge funds. These types of traders are most reactive to changes in fundamental or technical price developments. So while the report below give us useful information about the current major trends it also helps to decipher when a potential reversal is looming.
The agriculture sector finally saw some sporadic buying return which helped reduce the overall record short by 79k lots. Short-covering supported soybeans, sugar and cotton.
Following the cut-off date last Tuesday, the combination of a record short, a weather forecast for rain delayed the start of the US planting season and the biggest spot sale to China in five years last Friday has driven corn to a three-week high. Staying with grains, the news from US federal weather agencies that some areas my face record floods through May is likely to provide some general short-term support to the sector over. The important planting season will begin soon and on Friday, March 29, the USDA will release its “Prospective Planting Report” in which sum up their views on the acreage allocation for key crops this coming season.
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.