COT: Grain long hits 2014 high; Oil longs cut as market rallied

Ole Hansen

Head of Commodity Strategy

Summary:  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 6. A week where bullish bets rose above 2 million lots with buying concentrated in natural gas, soybeans, corn, wheat and sugar. Others like oil saw net-selling despite higher prices while copper, cocoa and coffee were also sold. Small gold buying ahead of the rally back above $1900/oz.


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 6. This was the week where President Trump’s coronavirus diagnosis helped support the prospects both for stimulus and an easier election win by Joe Biden as he extended his advantage in opinion polls. In response to these developments, the S&P 500 traded higher by 1% while the dollar was slightly softer. The big move, however occurred at the far end of the U.S. yield curve, with yields on 10 and 30-year bonds surging to a four-month high. Commodities, led by oil and grains traded higher on hurricane and dry weather concerns.

In the week, the Bloomberg Commodity Index, rose by 1.6% with the rally being led by a surging grains sector on dry weather concerns followed by crude oil and fuel products on U.S. hurricane and Norwegian strike threats. Speculators meanwhile increased their total long across 24 commodities by 7% to 2 million lots, the highest since May 2018. The buying was concentrated in natural gas, soybeans, corn, wheat and sugar. Others like oil saw net-selling despite higher prices while copper, cocoa and coffee were also sold. Small gold buying was seen ahead of the rally back above $1900/oz.

Energy: Crude oil, led by WTI on renewed hurricane threats to production in the Gulf of Mexico, rallied only to see the speculative net-long in both WTI and Brent being reduced. Potentially a sign that speculators viewed the rally as temporary with fundamentals still challenged given the uncertain demand outlook. The WTI and Brent combined net-long was reduced by 4% to 385,468 lots and in both cases it was driven by long liquidation and increased short-selling. 

Latest: Brent Crude Oil (OILUKDEC20) and WTI Crude Oil (OILUSNOV20) have drifted lower but holding up relatively well considering the news flow this U.S. Columbus day Monday: Operations in the U.S. Gulf of Mexico has restarted after the passing of Hurricane Delta, a strike in Norway ended while Libya is moving towards opening its biggest oil field with a 300k barrels/day capacity. Supporting the market are the prospect for more U.S. stimulus and the weaker dollar while Goldman Sachs in report concluded that a “Blue wave” U.S. election would be positive for energy. Weekly oil market reports from OPEC on Tuesday and IEA on Wednesday. 

Energy

Metals: Gold saw a small amount of buying for the first time in three weeks, but at 131,009 lots, the net-long stayed close to a 16-month low. This just before renewed reflation focus, stimulus hopes and a weaker dollar on Friday lifted gold to the $1930/oz while silver surged as much as 5.2% with the XAUXAG at 76.75 retracing half the September surge from below 70 to above 85.

Despite recovering strongly from the early October correction, the HG copper long was reduced for a second week with the net long falling by 9% to 69,806 lots. Platinum which last month slumped by 12% versus gold saw its net short rise further to 691 lots. Together with NY Habor ULSD (diesel) and feeder cattle they are the only commodities in this report, where speculators currently hold a net short position.

Latest: Spot Gold (XAUUSD) and Spot Silver (XAGUSD) both trade close to unchanged thereby defending the strong gains from Friday.  Total known ETF holdings reached a fresh record at 111.1 million ounces. The week ahead is likely to offer more of the same with focus on the prospect for a new plan to support the U.S. economy and whether Trump has given up or will attempt a last-minute comeback ahead of the November 3 election. Gold is trading within a 55-dollar wide rising channel with resistance currently at $1938/oz. 

Precious and industrial metals

Agriculture: The combine grain and oil seed long across six futures contracts reached 588,636 lots, the highest since April 2014. Instead of soybeans being the main driver as seen in recent weeks, it was corn and wheat buying that helped lift bullish bets. The total net-long in soybeans, oil and meal reached a record 396,000 lots or 67 percent of the total sector long, while corn at 134,466 lots took up 23 percent. That left just 10 percent or 57,700 lots of the total exposure in the Kansas and Chicago wheat contracts.

Latest: Friday’s WASDE result was particularly supportive for soybeans and corn while wheat futures slumped after reaching a five-year high on Thursday. In the report the USDA said U.S. soybean and corn supplies will be smaller than previously forecast, as adverse weather reduced the acreage farmers will harvest this autumn. The USDA pegged soybean stocks at a five-year low, with rising exports, especially to China, eating into the stockpile. With U.S. supplies tightening the focus has turned to South America where dry conditions has threatened plantings. Dry weather has for become a reoccurring theme with dryness in the Black Sea region hampering winter wheat plantings. 

Key U.S. crop futures

In soft commodities, sugar bulls responded to a 3.4% price rally by increasing an already elevated long by 4% to 238,394 lots, a near four year high, but still 25% below the September 2016 record at 286,000 lots. 

Coffee which which has dropped more than 20% since early September touched $1.05/lb during the reporting week and speculators responded to the continued weakness by cutting bullish bets by 19% to 29,432.

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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