COMMODITIES 10 minutes to read

COT: Funds slash bullish commodity bets

Ole Hansen

Head of Commodity Strategy

Summary:  The latest US Commitment of Traders report showed a major decline in funds' total commodities position.


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.

To download your copy of the Commitment of Traders: Commodities report for the week ending March 5, click here.

Hedge funds cut bullish commodity bets by almost one quarter last week. The total net-long slumped to a three-year low at just 494k lots. Looking at the table below we find the agriculture sector, led by grains, being out of favour with traders and investors holding net-short positions in 12 out of 14 futures contracts. At the opposite end the energy sector, led by crude oil, remains the most favoured followed by metals. 
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Source: Bloomberg
In crude oil, the combined net-long in WTI and Brent reached an 18-week high at 443k lots. While Brent saw reductions in both long and short positions, WTI traders were somewhat more bullish with a slump in US imports supporting fresh buying (10k lots) and short-covering (10k lots).

Since hitting a through at 243k lots on January 8 – a three-year low – funds have only bought back 200k lots despite having seen the price of both Brent and WTI recover close to half the October to December sell-off. Thishighlights that macroeconomic driven investors worry about the impact of slowing global growth despite the Opec+ group’s best efforts to support the price through cutting production.
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Gold’s recent trading behavior has seen funds unsuccessfully chase the market. After buying 44k lots in the run-up to the failed attempt at $1,350/oz, they then dumped 56k lots last week after gold came close to challenging key support at $1,275/oz. The biggest jump in short holdings since July may further support the price, especially on a technical break above $1,306/oz, the 38.2% retracement of the recent correction. 
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The recently established net-longs in copper and platinum both increased further despite emerging signs of profit-taking. The rise in net-longs, however, were both driven by traders taking the opportunity to cover shorts at lower levels – especially in platinum, which dropped by more than 5% during the week. 
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Weeks of selling have seen the grains sector once again emerge as the most shorted. The combined net-short in soybeans, corn and wheat jumped 50% last week to 300k lots, a 13-month high and highest for this time of year since 2016.  Corn, which saw the May contract reach a contract low on Friday following a bearish monthly WASDE report, has been hardest hit in terms of selling during the past month.  
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Last Friday’s WASDE report for March helped send the May-19 CBOT Corn futures to a contract low after ending stocks beat the most optimistic forecast at 1,835 million bushels. Higher wheat stocks also weakened the price but the impact eventually turned out to be limited for both contracts, not least due to how much the price had already weakened ahead of the report but also due to the aforementioned report which shows that fund swere already holding very elevated short positions. 
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Source: USDA, Bloomberg, Reuters
Funds hold short positions in all four soft contracts. In cotton the net-short remains close to a 12-year high despite some light buying last week. The net-shorts in both sugar and cocoa more than doubled following a week of price weakness. 

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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