Head of Commodity Strategy
Summary: Hedge funds maintained an almost unchanged exposure to 24 major commodity futures and options in the week to June 11. However, some major switches continued between the sectors.
To download your copy of the Commitment of Traders: Commodity report for the week ending June 11, click here
From a technical perspective the dwindling long and increased short positions have left the market exposed to an upside move should the situation in the Middle East deteriorate further. On the other hand the failure to break higher last week amid the evidence of Iranian involvement could indicate that further losses can be seen should the situation stabilise. In Brent the levels in our opinion to look out are currently $59.50/b to the downside and $64.50/b to the upside.
On that basis we are now witnessing a battle between strategic buyers versus tactical short sellers. A draw between the two is likely to be seen as long gold stays within a $1,320/oz to $1,358/oz range.
Forecasts for even more rain have sent corn futures higher for a sixth consecutive day as hopes for more planting vanish and concerns grow about the prospects for the crop that did manage to get planted. The last time the new crop contract for December delivery spiked higher around this time of year was in 2016 when it peaked at $4.49/bu before falling by more than 20% as conditions improved. So far the current December contract (ZCZ9) has reached $4.72/bu with the fundamental and a not yet elevated speculative long providing continued support.
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.