COT: Grain longs cut ahead of price correction

Ole Hansen

Head of Commodity Strategy

Summary:  This update highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, January 19. A relatively quiet week where the market focused on a continued rise in Covid-related lockdowns and the beginning of the US earnings season. The reflation trade focus meanwhile began to fade with Republicans pushing back against President Biden's $1.9 trillion Covid-19 relief plan. Few changes in energy and metals while grain longs were cut ahead of the biggest weekly slump since 2016


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.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex, bonds and stock indices up until last Tuesday, January 19. A relatively quiet week where the market focused on a continued rise in Covid-related lockdowns and the beginning of the US earnings season. The reflation trade focus meanwhile began to fade with Republicans pushing back against President Biden’s $1.9 trillion Covid-19 relief plan.

While the Nasdaq pushed higher, the S&P 500 and global stocks in general traded unchanged while the dollar stayed bid after Yellen’s comment that the new administration is not seeking a weaker dollar. US 10-year bond yields ticked lower by four basis points as real yields slumped back below minus 1%. The Bloomberg Commodity Index traded lower for a second week, thereby attracting another week of mild profit taking.

Commodities

Speculators made another albeit small reduction in bullish bets on 24 major commodity futures contracts. Overall the Bloomberg Commodity Index traded lower by 0.7% with losses in crude oil, natural gas and not least the soybean complex being partly offset by gains in platinum, corn and the soft contracts of sugar, cocoa and coffee. Overall the net-long was cut by 1% to 2.5 million lots, still near record levels, with the biggest reductions seen in soybeans, corn and natural gas while buying supported fuel products (gas oil & diesel), wheat and coffee.

Energy: In crude oil, small buying of WTI was almost being offset by Brent selling with the combined net-long reaching a 12 month high at 669k lots. Fuel products led by gas oil and ULSD (diesel) all got bought while the natural gas long was cut by 2% in response to a 7.5% drop in the price on milder US weather outlook. 

Metals: A reduction in both long and short left the gold net unchanged on the week, this following the 31% reduction to a 19 month low in the previous week. Small changes seen in both silver (-4% to 41k lots) and HG copper (+3% to 78k lots).

Softs: Small changes in sugar, cocoa and cotton while the Arabica coffee long jumped 52% to 24k lots on Conab's Brazil production downgrade. 

The grains sector trades lower, but off their overnight lows, following its worst week in terms of losses since 2016. The combination of a very elevated speculative long and improved crop conditions in South America saw soybeans (SOYBEANMAR21) loose 7.5%wheat (WHEATMAR21) 6% and corn (CORNMAR21) 5.8% last weekDuring the past five months when soybeans and corn rallied by more than 50%speculators accumulated a record net long across 6 grain and soy contracts of more than 800,000 lots. With some of the South American uncertainty now reduced, the focus will return to Chinese demand, the dollar, and the upcoming US planting season. 

Forex

The rising yield-led dollar rally during the first weeks of January continued to be met with net speculative dollar selling during the week to January 19. Speculators increased their dollar short against ten IMM currency futures and the Dollar Index by 2% to $36.6 billion, a level not seen in almost ten years. However, looking at the table below we find a much more mixed picture than in previous weeks, with most of the dollar selling being concentrated against the euro after speculators lifted the net long in ECH1 by 7.6k lots to 163.4 lots (€20.4 billion).

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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