Speculative longs cut to the lowest since July 2009

Hedge funds and large investors continue to scale back their long exposure to commodities as the economic outlook for 2012 worsens and it could potentially reduce the demand for raw materials. The European sovereign debt crisis has become a liquidity crisis with banks busy tightening lending. This is reducing the amount these funds have available for margin trading and the impact is now being felt across most markets including commodities.

Last week speculators reduced their combined long exposure of futures and options on the 25 commodities we track by 19 percent to 770,000 lots, the lowest level since July 2009 and well below the recent peak of nearly 2 million contracts back in February. In nominal terms the exposure dropped by $12 billion to $76 billion last week.

All sectors saw reductions with the agriculture sector especially suffering a 34 percent setback as global grain growers will produce a record in 2011 thereby responding strongly to the high prices seen in 2010 and early 2011.

The grain sector tumbled with long exposure to corn, the darling of the grain markets, dropping by 22 percent. The overall long exposure to grains now sits at only 84k lots, down from 865k lots in February when worries about this year's crop reached boiling point. The short position in the soy complex, which comprises soybeans, soy meal and soy oil, grew for the second week reaching -45K lots.

Energy sector relatively unscathed with small reductions in WTI, Heating oil and gasoline being offset by an almost equal reduction in the natural gas short position. The metal sector saw reductions across the board with investors trimming long positions in gold after the failure to make further progress while the short position in copper nearly tripled.




Background information: The Commitments of Traders is a report issued by the Commodity Futures Trading Commission every Friday with data from the previous Tuesday. It comprises the holdings of participants in various U.S. futures markets split into "commercial" and "non commercial" holdings. The non commercial or speculative holding are typically institutional investors such as hedge funds and CTAs. Analysts and investors follow changes in these positions because such transactions can reflect an expectation of a change in prices.