COT: Wheat short jumps ahead of latest Ukraine supply worry
Head of Commodity Strategy
Summary: Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to Tuesday, October 25. A week where financial markets received a boost from speculation the Fed was considering a pause. The dollar traded softer with commodities predominantly trading in the black with exceptions being soft commodities and not least wheat where short selling accelerated just ahead of today's price spike on renewed Ukraine supply worries
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
Financial Markets Daily Quick Take
Saxo Market Call Daily Podcast
This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to Tuesday, October 25. A week where financial markets received a boost from speculation the Fed was considering a pause to assess to the economic impact of already implemented rate hikes and quantitative tightening measures. Both the S&P and especially the Nasdaq traded higher ahead of earnings from the big technology companies while bond yields climbed and the dollar traded softer. Commodities traded predominantly in the black led by energy and industrial metals with heavy and continued selling of softs and wheat being the main outliers.
The Bloomberg Commodity index traded up 1% on the week with strength in crude oil and industrial related metals attracting fresh buying from speculators. Overall, however, the combined net long held by money managers across the 24 major commodity futures tracked in this report remains relatively low at 1 million contracts compared with 2.2 million around the time of the Russian invasion of Ukraine. A slump that has been driven by the current lack of trends and strong momentum across many commodities, as well as concerns about the short-term outlook as the markets continue to focus on a slowing global economy.
Biggest changes made by funds this past were buying of crude oil, soybean meal and corn, as well as cattle and hogs while sellers concentrated their efforts in gold, wheat, sugar and cocoa.
EnergySpeculators maintained a relative low conviction rate regarding the short term direction of crude oil with the 4% rally during the reporting week only attracting 34k lots of net buying, thereby only part reversing the 57k lots that was net sold in the previous week. Selling of natural gas continued during the reporting week with the front month contract briefly dipping below $5/MMBtu. The result being another small increase in the net short held across four Henry Hub related futures and swap contracts to -86k lots, a 31-month high.
MetalsGold, trading unchanged on the week, nevertheless saw increased short selling in response to another and failed attempt to break below $1615 suppor. As a result the net short jumped by 61% to 33k lots, just 8k lots below the near four-year high reached a few weeks ago. Silver, together with platinum and copper all saw net buying, not least platinum which during the past month has seen its discount to gold narrow by 100 dollars to around 700, the narrowest spread since July 2021.
In grains, four weeks of net selling was almost reversed as buyers added soymeal and soy oil length amid price gains of 3.4% and 5.1% respectively. Together with additional buying of corn these more than offset continued selling of CBOT wheat driving the net short up by 63% to 36k lots, a 28-month high. The latest selling occurring during a week where global demand worries attracted more attention than a rapidly expanding drought situation across the US grain belt, and also before Russia over the weekend announced that they were pulling out of a deal that has allowed Ukrainian grain exports from Black Sea ports.
As a result wheat futures (ZWZ2) in Chicago surged as much as 7.7% to $8.93 on the Monday opening. Since the UN and Turkey supported grain corridor opened three months ago Ukraine has shipped more than 9 million tons of foodstuff and it has helped ease tight world supplies and control global food costs. Food exports from Ukraine also includes corn and sunflower oil and reduced supply of those has lifted corn futures (ZCZ2) in Chicago by 2.5% to trade near resistance at $7/bu and soybean oil futures by 1.8%.
Soft commodities witnessed another awful week with net selling hitting all four contracts, not least coffee and cotton, now down 33% and 45% respectively from their early 2022 peaks. The coffee net long was reduced by 75% to 3k lots, the lowest bullish conviction in almost two year primarily driven by an increase in the gross short position. A similar development was seen in cotton where global demand worries and another week of selling helped attract fresh short selling, resulting in the overall net long being cut by 40% to 13k lots, a 28-month low.
In forex, flows remained mixed during a week that saw the dollar index trade softer by 1% after recently hitting a 20-year high. Overall the gross dollar long against nine IMM currency futures and the Dollar index rose by 5% to $15 billion, primarily driven by heavy JPY selling as the under siege currency dropped 2.3% towards the important 150 level. Elsewhere, a recovering Sterling saw net selling driven by a combination of gross longs being reduced and fresh short selling. The euro net long reached a four month high at 48k lots on a combination of fresh longs and reduced short participation. Since late August speculators have net bought €12 billion after flipping their euro exposure from a 48k lots short to a 48k lots long.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.