COT: Agriculture leading a fund rush into commodities

Ole Hansen

Head of Commodity Strategy

Summary:  The Commitments of Traders report covering commodity positions held and changes made by money managers in the week to August 11. A rise in U.S. bond yields helped trigger profit taking across interest rate sensitive sectors, such as precious metals. A 3.7% jump in the Bloomberg Commodity Index driven by gains in all the major sectors, helped boost bullish commodity bets across 24 major futures contracts by 22% to 1.6 million lots, a 24-month high


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 major commodity futures up until last Tuesday, August 18. It was a strong week for risk with the S&P 500 adding 1.7% to its already strong gains, bond yields ticked higher while the Dollar Index dropped by 1.4% on weakness against all of its major peers. 

A 3.7% jump in the Bloomberg Commodity Index driven by gains in all the major sectors, helped boost bullish commodity bets across 24 major futures contracts by 22% to 1.6 million lots, a 24-month high. Twenty out of the mentioned 24 contracts were bought with the bulk of the net change being driven by the agriculture sector led by soybeans, corn, soybean meal and sugar.

Energy: Both Brent and WTI crude oil were two of just four contracts seeing net selling during a strong week for commodity risk. Some emerging nervousness helped attract fresh short selling from funds in response to crude oil’s failure to respond to a general level of raised risk appetite led by rallying stocks and a weaker dollar.

Latest: Crude oil may face a volatile week with U.S. hurricane threats being offset by a virus resurgence in Europe and Asia. Two hurricanes are forecast to hit the US Gulf simultaneously for the first time in recorded history. Tropical storm Marco and later in week Laura are both expected to become at least category 1 hurricanes. Production and refinery capacity as well as export and imports are all likely to be impacted. Energy firms have already started to shut down oil production from a region that accounts for about 16% of crude and 2.5% of U.S. natural gas production.

WTI crude oil remains stuck below $43/b, a level that has been rejected almost daily for the past two weeks while Brent remains range bound-between its 50-day moving average at $43.40 and the 200-day at $46.15.

Energy

Metals: Buyers returned to gold and silver for the first time in four weeks. This after both metals made a strong – and as it turned out temporary - recovery from the correction the previous week. In gold, however, the 3% increase in the net long to 155,274 lots was primarily driven by short-covering. Fresh longs were added to silver with the net long reaching 31,615 lots, some 37,000 lots below the February high. Back then the semi-precious metal traded $18.5/oz compared with the current $26.8/t. It highlights the continued hesitancy from funds to get involved following the July and early August surge.

Copper’s break above resistance at $3/lb (LME above $6600/t), helped trigger a 29% increase in the net-long to a fresh 26-month high at 60,974 lot. An increase that at the end of last week came back to haunt the market and helped trigger long liquidation and lower prices after it failed to establish support above the mentioned levels.

Latest: Gold and silver finished last week close to unchanged as the correction/consolidation continues. Friday’s weakness was led by a stronger dollar in response to stronger-than-expected U.S. economic data. Overall, however the impact was limited due to renewed weakness in US ten-year real yields as the rate dropped back below –1%. Focus in the week ahead will be Trump’s virus treatment news and Powell’s speech at the virtual Jackson Hole symposium. Key support remains ahead of $1900 while resistance has been established at $2015.

Precious and industrial metals

Agriculture: The grain sector saw a combined 198,000 lots of buying, led by the soybean complex and corn where funds are now the least bearish in four months. Length was added to all the four soft contracts led by sugar. In general the ten agriculture contracts (minus livestock) tracked in this report have seen the position shift from a 333k lots short in early June to a current long of 371k lots, the highest since May 2018. Surging Chinese demand combined with weather concerns and the weaker dollar have sparked renewed life into demand for investments in food commodities.

Latest: We will watching some of the major agriculture ETF’s, such as DBA:arcx, AIGA:xlon and RJA:arcx for signs of whether the multi-year downtrends can be challenged with this the latest pickup in prices and speculative interest. Also, this week on August 27, the International Grain Council will issue its latest global crop forecasts with the market looking for any signs of supply concerns to support the rally.

Key U.S. crop futures
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.
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.