Article / 05 March 2018 at 8:58 GMT

COT: Grain longs jump while buyers return to energy – #SaxoStrats

Head of Commodity Strategy / Saxo Bank
  • Hedge funds increased bullish commodity bets to two million lots
  • Buying was once again concentrated in grains
  • The energy sector, with the exception of natural gas, was bought

By Ole Hansen

Hedge funds increased bullish commodity bets by 9% to two million lots in the week to February 27. Buying was once again concentrated in grains where funds continued to cut shorts in wheat while adding fresh longs in soybeans and corn. The energy sector, with the exception of natural gas, was bought while metals led by gold saw further reductions. 

Speculative positioning in Commodities

Funds increased the combined long oil bet in WTI and Brent for the first time in five weeks by 36,000 lots to 1 million lots. This after cutting it by a total of 133,000 lots during the previous four. The dwindling short base led to another rise in the long/short ratio to a record 12.6. This highlights a continued downside risk to oil should the technical and/or fundamental outlook turn less favourable. 

Speculative positioning in Crude oil

Some of the funds holding a near-record oil bet care little about oil fundamentals and care more about the overall macro outlook, hence the recent positive correlation to stocks ("Fundamentals do not matter to new breed of oil speculator" via $FT). They are, however, unlikely to worry as long the price stays above $61/b on Brent and $57.50/b on WTI.

Funds sold gold, silver and copper in response the price weakness that followed a testimony from new Federal Reserve chairman Jerome Powell in which he signalled a continued rise in interest rates. The net-short in silver hit a fresh record of 16,600 lots as it continued to struggle relative to gold with the gold-silver ratio having stayed above 80 since the beginning of February. 
Speculative positioning in gold and silver futures

Grains may pause ahead of Thursday’s monthly World Agriculture Supply and Demand report from the US Department of agriculture. The sector has woken up from a multi-year snooze with record high stock levels increasingly being challenged by an uncertain production outlook with extreme heat in the Southern hemisphere and extreme cold across the Northern hemisphere impacting a variety of food commodities from soybeans to wheat.

The ongoing drought hurting the soybean crop in Argentina continued to the main driver behind an explosive thrust higher in the net-long of both soybeans and soybean meal with the latter reaching a record high last week. Adding the continued buying of corn and wheat the combined net-long of the three major crops reached 146,000 lots, up from a record short of 473,000 just six weeks ago.

Speculative positioning in grains and beans

Funds increased bullish cocoa bets by one-quarter to 26,000 lots, the highest since September 2016. This during a week where cocoa reached a 14-month high on a shrinking world surplus due to dry conditions in West Africa. The other softs were mixed with the sugar net-short extending further just ahead of a price spike last Wednesday. 

Soft commodities

– Edited by Clare MacCarthy


Ole Hansen is head of commodity strategy at Saxo Bank

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