Broad Commodity Buying; Dollar Long Jumps

Saxo Bank publishes 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 and attached report highlight futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, October 5. A week that saw the S&P alternating between sharp gains and losses in response to US debt ceiling talks, tightening Federal Reserve policy and the energy crunch. Developments that in the end left the S&P 500 a tad softer while US treasury yields and the dollar held steady.

Commodities

A lot of action was once again seen in commodities with the Bloomberg Commodity spot index hit rising 3% to hit another decade high. Just like the previous week, some of the biggest movers were found in energy led by natural gas, crude oil and diesel. Precious metals found a fresh bid but apart from energy the biggest movers were found in agriculture where strong gains were seen in soybean oil (fuel link), wheat, cocoa and not least cotton.

In response to these continued bullish developments, hedge funds increase their net long positions across 24 major commodity futures markets by 5% to a four-week high at 2,08 million lots, with the increase spread out across all sectors with copper and platinum-group metals being the exceptions.

Energy

Buying of crude oil extended to a sixth week with the WTI and Brent net long rising by 22k lots to a 12-week high at 649k lots. The diesel (NY Harbor ULSD) long jumped to a three-year high at 48k lots while length in natural gas continued to be reduced despite seeing the price surge higher by 7.3%.

Latest from our Daily Market Quick Take: Crude oil has started the week on a strong footing as the global power crunch continues to raise expectations for higher gas-to-oil switching demand at a time where OPEC+ maintains its modest pace of monthly oil production increases. Saudi Aramco estimates the gas shortage has already lifted oil demand by an additional 0.5m barrels/day.

Coal futures in China surged 8% overnight after torrential rain and landslides halted some production at mines in the Shanxi province, the nation’s top producing region, thereby adding further support to global fuel prices, including crude. Monthly oil market reports on tap this week, starting with OPEC on Wednesday and followed by the IEA on Thursday. With WTI already trading at seven-year high, Brent may now target the 2018 high at $86.74.

Metals

Hedge funds had another go at trading precious metals from the long side with the gold net long rising by 61% to 67.8k lots, and the silver long by 1k to 4.6k lots. In general the exposure in both metals remain weak given the two metals current struggle to muster a rally during times of price supportive developments, only to fall back on price negative news. Copper also remains an under owned metal following many months of sideways trading while only small changes were seen in the two shorted metals of platinum and palladium.

Agriculture

Speculators resumed selling in soybeans with the net long falling by 9.9k lots to 49.5k, a fourteen-month low, and during the past year the net long has now collapsed by 80%. Soybean oil meanwhile received buying attention given its fuel link. Small buying of corn while the CBOT wheat position flipped back to a net long, a development that has been seen four times during the past year and it reflects how speculators struggle to build consensus for this key crop.

In softs, the cocoa long jumped 226% to 31k lots after the price surged by 8%. Cotton’s 9% rally to a fresh multi-year high supported a 2% increase to 96.7k lots, highest since May 2018. Coffee net buying continued (+6% to 45.6k) despite negative price action during the reporting week.

Forex

The dollar long against ten IMM currency futures and the Dollar Index jumped 43% or $7.7 billion to $25.6 billion and is now the largest since June 2019. The greenback was bought against all currency futures except JPY, and speculators now hold net short positions in all pairs except NZD. Selling was concentrated in EUR (23.2k) with speculators going short for the first time since last spring. However, at 22k lots the short remains well above the 114k lots short seen during the early stages of the Covid-19 panic in February last year.

Interesting to note that the aggressive dollar buying occurred during a week where the Bloomberg Dollar Index traded unchanged with weakness in EUR being offset by strength in all the other major crosses, especially GBP, CAD and AUD.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

World Food Prices Climb for Second Month in September -FAO

The Rome-based Food and Agriculture Organization (FAO) also raised slightly its projection of global cereal production in 2021, to 2.800 billion tonnes from 2.788 billion tonnes estimated a month ago.

FAO’s food price index, which tracks international prices of the most globally traded food commodities, averaged 130.0 points last month compared with a revised 128.5 for August.

The August figure was previously given as 127.4.

On a year-on-year basis, prices were up 32.8% in September.

Agricultural commodity prices have risen steeply in the past year, fuelled by harvest setbacks and Chinese-fuelled demand.

For cereal production, FAO said its 2021 projection represented a record crop but was nonetheless below expected global demand, leading to a fall in forecast cereal stocks.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gus Trompiz;Editing by Elaine Hardcastle)

Commodity Markets Set for High Volatility, Says Louis Dreyfus

Prices of agricultural commodities have risen sharply, a trend contributing to increased first-half profits reported by LDC, but remain well below peaks seen a decade ago, Michael Gelchie said.

“Unlike in 2010-2011, we’re likely in store for a period of elevated volatility,” Gelchie told Reuters in a telephone interview.

Continued waves of COVID-19, shipping congestion and question marks over when the U.S. Federal Reserve will start tapering monetary support were all fuelling volatility, he said.

“We still haven’t necessarily seen a normalisation of the supply chain,” Gelchie said.

A broader surge in commodity and energy prices also reflected a shift towards a low-carbon economy, given that “the infrastructure to support that costs money,” he added.

LCD, one of the world’s larggest agricultural commodity merchants, earlier on Tuesday announced a sharp rise in first-half profit, supported by higher prices and strong demand for staple crops.

Gelchie declined to comment on the group’s prospects for the rest of the year, noting that prices remained high and crush margins for oilseeds strong.

The improved results further ease financial pressure on LDC after it completed this month the sale of a stake to Abu Dhabi holding firm ADQ, bringing in the first non-family shareholder in the agricultural commodity group’s 170-year history.

The deal with ADQ, which allowed LDC’s parent company to repay $1 billion borrowed from its operating group, would help LDC accelerate investments, Gelchie said, without giving details.

ADQ has secured four seats on an enlarged nine-member supervisory board headed by main shareholder Margarita Louis-Dreyfus.

The deal with LDC also involves a plan to supply food commodities to the United Arab Emirates.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Gus Trompiz; editing by Barbara Lewis)

Louisiana Grain Terminal Reopens After Hurricane Ida as Nicholas Rains Arrive

Global grain trader Cargill Inc said it had reopened its Westwego, Louisiana, grain export terminal and on Monday unloaded its first grain barge since Ida came ashore on Aug. 29 and crippled shipments from the busiest U.S. grain export hub.

Cargill is the latest major grain trader to revive export operations after Ida devastated the region’s power grid and damaged some of the nearly dozen grain terminals dotted along the Mississippi River from Baton Rouge to the Gulf of Mexico.

Heavy rains from Nicholas lashed storm-battered Louisiana again on Tuesday after coming ashore on the Texas Gulf Coast, bringing the threat of floods and more power outages. The storm was expected to move over Louisiana, Mississippi and the Florida panhandle through Thursday.

Power was finally restored to Cargill’s heavily damaged terminal in Reserve, Louisiana, on Monday for the first time since Ida, but the company is still assessing damages from that storm and developing “phased reopening plans,” Cargill spokeswoman April Nelson said.

Cargill is monitoring rains from Nicholas on Tuesday, but it has not confirmed any impact on recovery efforts, Nelson said.

Rival exporters Louis Dreyfus Co and Archer-Daniels-Midland Co have been loading export shipments for several days, while a facility owned by Bunge Ltd remains shuttered, according to the companies and shipping sources.

CHS Inc and Zen-Noh Grain, which also operate large grain terminals near the Louisiana Gulf Coast, did not immediately respond to requests for comment on their recovery efforts.

U.S. grain exports hit their lowest level in years last week as shippers struggled to restart their facilities at the Gulf, where some 60% of U.S. crop exports exit the country.

The U.S. corn harvest is starting, meaning more grains will be available to move in coming weeks.

Nine grain vessels were loading for export at Gulf terminals and floating rigs this week, up from just three late last week, a barge broker said.

Louisiana state officials said rains from Nicholas are complicating the recovery from Ida, particularly in flooded parishes and those still without power, and in areas along flood-swollen rivers.

“We’ve gone through this sort of thing in the past, where we will get two storms at a time during the peak of hurricane system,” said Mike Strain, commissioner of the Louisiana Department of Agriculture. “It complicates matters.”

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karl Plume in Chicago, additional reporting by P.J. Huffstutter in Chicago, Editing by Franklin Paul and Aurora Ellis)

U.S. Grain Exports Sink as Gulf Terminals Struggle to Recover From Ida

Weekly U.S. Department of Agriculture (USDA) grain inspections data, an early indicator of shipments abroad, showed the volume of corn weighed and certified for export last week was the lowest in 8-1/2 years as no grain was inspected along the Louisiana Gulf Coast, the busiest outlet for U.S. crops.

Soybean inspections were up only slightly from the prior week’s seven-year low as only a single large bulk grain ship bound for top importer China was loaded last week in the Pacific Northwest and none at the Gulf, USDA data showed.

Ida crippled overseas grain shipments just weeks before the start of the Midwest harvest and the busiest period for U.S. crop exports, sending export prices soaring and stoking global worries about food inflation.

Most of the nearly dozen large grain terminals dotted along the Mississippi River from Baton Rouge to the Gulf of Mexico escaped the storm with only minor damage, but the region’s devastated power grid has hobbled the recovery.

More than 50 bulk vessels were lined up along the lower Mississippi River on Monday waiting to dock and load with grain once terminals reopen, and only a handful of ships had moved over the weekend, according to an industry vessel lineup report and Refinitiv Eikon shipping data.

The vessel Yangze Navigation was docked at Zen-Noh Grain terminal in Convent, Louisiana, on Monday waiting to be loaded with corn, the shipping data showed. Another vessel, the Darya Aum, docked over the weekend and was awaiting its soybean cargo at a terminal owned by Louis Dreyfus Co near Baton Rouge that was able to start loading vessels last week.

Archer-Daniels-Midland Co, one of the world’s biggest grain traders, restarted operations on floating midstream rigs that transfer crops from barges onto bulk ships.

The USDA’s Federal Grain Inspection Service (FGIS) said late last week that its New Orleans field office is still recovering from the storm and that its inspectors are working with exporters to provide official grain inspection and weighing services. The agency has no estimate as to when inspections will fully recover, FGIS said in an emailed statement.

FGIS inspectors checked just 138,189 tonnes of corn in the week through Sept. 9, down 85% from the same week a year ago, USDA data showed. Soybean inspections totaled 105,368 tonnes, down 94% from the same week a year earlier.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Karl Plume in Chicago; Editing by Paul Simao)

U.S. Pegs Farm Income at Eight-Year High Amid Strong Corn, Soy Prices

A surge to eight-year highs in U.S. corn and soybean prices this spring has brightened the financial outlook for farmers even as aid payments from the federal government are declining. Crop prices have pulled back from peaks reached in May but remain historically high due to tight global supplies and robust imports from China.

Rising profits have increased farmers’ demand for land, tractors and tools, providing an economic boost to rural towns.

The USDA’s latest forecast is positive for equipment manufacturers such as Deere & Co, AGCO Corp and CPM Holdings, Moody’s Investors Service said in a note.

Farmers in recent years relied on aid payments from the federal government to offset financial losses linked to the U.S.-China trade war and COVID-19 pandemic. However, direct government payments are forecast to fall by 38.6% to $28 billion in 2021 due to reduced COVID-19 relief, after increasing by 103.5% in 2020 compared to 2019, according to the USDA.

In February, the USDA predicted net farm income, a broad measure of profits, would fall 8.1% in 2021 due to lower government payments and higher expenses.

Farmers’ production expenses will increase by 7.3% to $383.5 billion in nominal terms this year, according to the USDA. Spending on nearly all types of expenses is expected to rise, the agency said, as U.S. consumers grapple with inflation across a range of products.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Tom Polansek; Editing by Mark Porter)

 

World Food Prices Jump in Aug, Cereal Harvest Outlook Cut – FAO

The Rome-based Food and Agriculture Organization (FAO) also said in a statement that worldwide cereal harvests would come in at nearly 2.788 billion tonnes in 2021, down on its previous estimate of 2.817 billion tonnes but still up on 2020 levels.

FAO’s food price index, which tracks international prices of the most globally traded food commodities, averaged 127.4 points last month compared with 123.5 in July.

The July figure was previously given as 123.0.

On a year-on-year basis, prices were up 32.9% in August.

FAO’s cereal price index was 3.4% higher in August from the previous month, with lower harvest expectations in several major exporting countries shunting up world wheat prices by 8.8% month-on-month, while barely surged 9.0%.

By contrast, maize and international rice prices declined.

FAO’s sugar index rose 9.6% percent from July, pushed up by concerns over frost damage to crops in Brazil, the world’s largest sugar exporter. Good production prospects in India and the European Union helped mitigate these concerns to a degree. Vegetable oil prices rose 6.7%, with palm oil prices hitting historic highs due to continued concerns over production levels and resulting inventory drawdowns in Malaysia. Quotations for rapeseed oil and sunflower oil also rose.

Meat prices edged up slightly in August, as strong purchases from China supported ovine and bovine meat prices and solid import demand from East Asia and the Middle East lifted poultry prices, FAO said.

The dairy price index edged slightly lower on the month.

FAO said the fall in its estimate for world cereal production this year was triggered by persistent drought conditions in several major producing countries.

Among the major cereals, the forecast for wheat production saw the biggest downward revision — down 15.2 million tonnes since July to 769.5 million tonnes — due mainly to adverse weather conditions in the United States, Canada, Kazakhstan and Russia.

The forecast for world cereal utilization in 2021/22 was cut by 1.7 million tonnes from July to 2.809 billion tonnes, still 1.4% higher than in 2020/21.

The estimate for world cereal stocks by the close of seasons in 2021/22 was lowered by 27.0 million tonnes since July to 809 million tonnes, pointing to a decline of 0.9% on stock levels registered at the start of the period, FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

Gold Bought, Oil and Copper Sold on Virus Concerns

As a result the dollar strengthened, yields dropped while commodities traded lower, led by losses in energy and industrial metals while gold and most agriculture commodities saw net buying.

Saxo Bank publishes 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.

The summary below highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 17. A week where continued focus on the risk of an earlier than expected unwinding of the Fed’s massive stimulus program, helped support a renewed growth to value rotations in stocks, a stronger dollar and somewhat surprising, lower bond yields.

The latter potentially driven by emerging risk adversity caused by the continued spreading of the delta coronavirus variant as well as weaker input cost through lower commodity prices.

A relative small decline in the Bloomberg Commodity index driven by another decline in both energy and industrial was partly offset by continued buying of grains and softs, as well as renewed demand for gold.

Commodities

The Bloomberg Spot index traded lower in the week to August 17, albeit only by 0.4% with losses in energy and industrial metals being partly off-set by strength across the agriculture sector and renewed buying of gold. The rotation resulted in the combined long across 24 major commodity futures holding unchanged at 2.2 million lots with the biggest reductions hitting Brent crude oil, natural gas and copper while strong demand was seen in gold, corn and cocoa.

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Energy

In response to continued Covid-19 demand worries, speculators cut their combined crude oil long in WTI and Brent by a total of 31.2k to 534k, a nine-month low. All energy contracts including natural gas saw net-selling.

Monday morning comment

Crude oil (OILUSOCT21 & OILUKOCT21)as well as most other commodities has started the week with gains in response to improved risk appetite, not least supported by a softer dollar. Last week’s slump, the worst in three years for oil, was driven by the delta variant, Chinese growth worries, and the prospect of reduced Federal Reserve stimulus.

While the virus remains a threat to the short-term demand outlook, despite signs of an improving situation in China, this week’s Jackson Hole summit may give the market some ideas about the timing of tapering (see below). Double bottoms have emerged in Brent at $64.50 and WTI at $62 while speculators cut bullish oil bets to a 9-month low in week to August 17.

Metals

The strong recovery that followed the August 9 flash crash helped drive a 52% increase in the speculative gold long to 77.6k lots while silver, troubled by its link to falling industrial metals, saw its net length slump to a 26-month low at just 9.7k lots. Copper’s worst slump in two months helped drive a second week of selling which saw the net long down 38% on the week to 20k lots. Platinum which recently had seen its discount to gold hit $800 from less than $500 last month saw a small amount of buying after speculators recently build the biggest net short in two years.

Monday morning comment

Gold has started the week relatively good shape after managing to shrug off last weeks dollar strength and renewed pick up in real yields. It however remains below the psychological important $1800 level, as the market adopts a wait-and-see approach as investors await Jackson Hole later this week for more insight into the Federal Reserve’s policy outlook. Silver (XAGUSD) has clawed back some of last weeks losses with the XAUXAG trading at 76.80 after hitting 77.75 a couple of trading sessions ago.

HG Copper (COPPERDEC21) continues to recover following last week’s slump on supportive signs from China where stock levels have fallen and local premiums above LME spot has risen in response to the government’s efforts to combat the recent virus outbreak. Also, the risk of strike related disruptions in Chile remains with a slew of mines undergoing contract renewal talks, with unions at two mines currently out on strike.

The sharp recovery from below $4/lb, now a double bottom,together with the long-term supportive outlook for copper has helped attract fresh buying and short covering. First level of resistance at $4.215 followed by $4.295.

Agriculture

Across-the-board buying of key crops helped lift the grains sector long by 45k lots to a ten-week high at 544k lots. The biggest exposure remains by far in corn followed by soybeans and increasingly now also wheat, with both Kansas and Chicago traded wheat seeing raised demand during the past few weeks. In softs, all contracts saw net buying led by sugar with the net long reaching a five-year high, and cotton which reached a three-year high at 82k lots. Cocoa flipped back to net long while coffee was bought despite trading lower on the week.

Forex

Speculators almost cut their recently established dollar in half during the week to August 17. The selling, however, was concentrated against the euro where an initial rejection at €1.17 and subsequent bounce to €1.18 helped drive a 70% increase ($3.5 billion equivalent) in the EUR net long to a five-week high at 57.6k lots. Longs that immediately got challenged by the renewed euro weakness towards the end of last week when general risk adversity helped strengthen the dollar back below €1.17.

With most of the other major currencies led by CHF, JPY and CAD seeing continued selling, the overall reduction in the net dollar long against ten IMM currency futures and the Dollar index was cut by $2.3 billion to $2.6 billion.

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What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

  • Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
  • Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
  • Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

START TRADING NOW

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Gold and Silver Length Cut in Half; Agriculture Bought on Weather Woes

Saxo Bank publishes 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.

The summary below highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 10. A week where hawkish comments from Clarida, the Fed vice-chair and strong jobs report saw markets starting to price in an earlier than expected unwinding of the Fed’s massive stimulus program.

These developments helped trigger a one percent increase in the Bloomberg Dollar index while ten-year inflation protected yields jumped 16 basis points just after hitting a record low. Stocks saw another growth to value rotation while commodities traded mixed with heavy selling in precious metals being partly offset by continued buying across the agriculture sector. Energy and industrial metals also suffering setbacks on demand concerns in response the continued spreading of the delta coronavirus variant.

Commodities

The Bloomberg Spot index lost 1% during the reporting week to August 10, as the continued spreading of the delta coronavirus variant in Asia and parts of the US raised concerns about demand for key commodities such as crude oil and copper. Investment metals slumped on rising yields and dollar while the agriculture sector remained to the go to sector with adverse weather across the world providing a boost to both grains and softs.

Overall, the total net long across 24 major commodity futures was cut by 4% to 2.2 million lots with selling of crude oil, gas oil, gold, silver, and copper being only partly offset by demand for sugar, soybeans, corn, and wheat

16olh_cot1

Energy

Continued crude oil weakness saw speculators cut their net length in WTI and Brent for a second week to an eight-month low. This in response to demand worries caused by the rapid spreading of the delta coronavirus variant, not least in China were a relatively small number of cases has led to renewed shutdowns and restrictions on movements.

The combined long was cut by 48k lots to 566k, but just like the previous week reduction, the change was solely driven by long liquidation with no signs of appetite for naked short selling. Probably due to the belief the disruption will be transitory and that OPEC and friends, if necessary, will adjust production to support the price.

Monday morning comment: Crude oil trade lower for a third day with Brent back below $70after key oil consumer China released weaker than expected retail sales and industrial production data and following Friday’s very weak sentiment reading. These developments support IEA’s latest downgrade to demand for the months ahead as a resurgent delta coronavirus variant is impactingdemand across the world. Also, in the US there are signs shale producers are ramping up activities with the number after the number of rigs last week rose by 10 to 397, marking the biggest jump since April.

Metals

Speculators more than halved their gold and silver longs during a very troubling week for precious metals. The week covered a renewed rise in bond yields following Fed vice-chair Clarida’s hawkish comments and the strong jobs report culminating in last Monday’s flash crash. In response to these for metals adverse developments, the gold net length was cut by 52% to 51k lots while the silver length collapsed by 54% to just 12k lots, a fifteen months low.

Platinum, which during the week saw its discount to gold rise to $800 from an April low at $500 saw continued selling with the recently established net short more than doubling to a 13-month high at 9k. Rangebound copper was sold for a second week with the net long dropping 19% to 32k lots, thereby reversing half the buying seen since the June low at 19k lots.

Monday morning comment:

Gold finished last week on a firmer footing after a much weaker than expected University of Michigan sentiment (see below) helped deflate some of the buildup taper angst with Treasury yields and the dollar traded lower ahead of the weekend. Both paused their retreat overnight with gold and silver drifting lower as a result. A major band of resistance has emerged between $1790 and $1815 while support needs to hold around the $1750 area.

Following last Monday’s flash crash, speculators slashed their gold and silver net longs by more than 50% leaving the market exposed to fresh buying on a break higher. This week the market will be watching a speech by Fed chair Powell, as well as minutes of the Fed’s last meeting.

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Agriculture

Continued price gains across the agriculture sector helped drive another week of speculative buying in both grains and softs. Adding to the support was the grain market gearing up for an expected price supportive monthly supply and demand report from the US Department of Agriculture last Thursday. A report that turned out to justify the recent buying, not least in wheat which surged higher on weather related production reductions in the US, Canada and Russia.

The world is potentially facing a supply issue with high protein milling wheat used for human consumption in bread, and that explains why Paris Milling wheat and Kansas HRW wheat both trade higher by more than 10% this month. Overall, the net length in Chicago and Kansas wheat was increased by 10k lots to 64k, still substantially below the interest seen in corn (254k) an soybeans complex (180k)

Sugar is another highflyer due to lower supplies from frost and drought hit regions in Brazil, and news India, the world’s second largest shipper is considering diverting canes towards the production of biofuel to curb imports of increasingly expensive crude oil. The net length in raw sugar futures rose 7% to a five-year high at 265k lots. The cotton long reached a three-year high at 73k lots while the coffee long suffered a setback after the price retraced from a multi-year high above $2/lb.

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Forex

Speculators increased bullish dollar bets in response to the early August strong jobs report and hawkish Clarida comments. The reporting week ended last Tuesday when several currencies was under pressure from a strong greenback, not least the euro which was challenging key support at €1.17. In response to these developments, the net dollar long against ten IMM currency futures and the Dollar index jumped one-third to a fresh 17-month peak at $4.8 billion.

Selling was broad but mostly concentrated in euros, Japanese yen and Aussie dollar while short covering helped flip the Sterling position back to a net long.

16olh_cot4

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

  • Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
  • Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
  • Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodity Weekly: Weather Woes Keep Agriculture Commodities on Top

The commodity sector, with the exception of some key food items, remains on the defensive as the current surge in virus cases in major economies clouds the short-term outlook for growth and demand. In addition, the prospect for an earlier-than-expected return to a tightening regime by the US Federal Reserve has helped put upward pressure on bond yields and the dollar, thereby reducing the appeal for investment metals, such as gold and silver.

The macro-economic outlook remains clouded by the current third Covid-19 wave which continues to spread across Asia and parts of the US, thereby creating a great deal of uncertainty with regard to the short-term demand for key growth and demand-dependent commodities from crude oil and gasoline to copper and iron ore. With this in mind, the increased possibility of the US tapering its massive asset purchase program is unlikely to be followed by others, potentially leading to rising US Treasury yields and a stronger dollar.

As in the previous week, pockets of strength remained with several key agriculture commodities continuing to find support following what up until now has been a very volatile weather season across some of the key growing regions of the world. Cold weather in parts of Brazil has hit the sugar cane crop while also causing extensive damage to the region’s coffee as well. Elsewhere, extreme heat leading to dryness have sliced the expectations for this year’s grains crop, especially corn and wheat.

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In its latest World Supply and Demand Outlook (WASDE) the US Department of Agriculture forecast the lowest US wheat harvest in 19 years with global supplies suffering a further downgrade in response to large reductions to estimates from drought-hit fields in Canada and Russia. The prospect for lower shipments from Russia, the world’s biggest exporter, saw the high protein milling wheat future traded in Paris jump to a three-month high above 255 per tons, some 35% above the five-year average.

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Gas prices in Europe rose to another record before retreating with supply concerns being somewhat offset by weaker sentiment in the broader energy market given the latest wave of Covid-19. In the US, gas prices headed for their biggest weekly loss following a bigger-than-expected weekly rise in stocks, but forecast for another incoming heatwave will likely limit the correction with tight winter supplies, just as in Europe, a risk that may continue to support prices ahead of winter.

In Europe, an unexplained reduction in flows from Russia combined with rising competition from Asia for LNG shipments has made it harder to refill already-depleted storage sites ahead of the coming winter. These developments have led to rising demand for coal, thereby forcing industrial users and utilities to buy more pollution permits, the price of which are already trading at record prices. All in all, these developments have led to surging electricity prices which eventually will be forced upon consumers, thereby adding to the already rising cost of everything.

Gold spent most of the week trying to recover from the price collapse that followed the stronger-than-expected US jobs report on August 6. The sell-off culminated during the early hours of the Asian session last Monday when the yellow metal, within a short period, tanked more than 70 dollars. Coming into August, sentiment was already hurt by gold’s inability to rally in response to the July slump in Treasury yields. A drop in yields that concluded just days before the slump when US 10-year inflation-adjusted yields hit a record low at -1.22%.

Having struggled to rally amid favorable yields, gold immediately turned lower at the first sign of higher yields and once key technical levels in the $1750 to $1765 area were taken out, the flood of sell stops during a very illiquid time of day took it briefly down to the March double bottom below $1680, where fresh bids from physical gold buyers in Asia emerged once again.

The short-term outlook remains challenged by the risk of yields and the dollar both moving higher ahead of the late August meeting of central bankers at Jackson Hole. The annual symposium which in the past has been used to send signals of changing policies or priorities to the market.

A weekly close above $1765 in gold would create a bullish candle on the chart and it may help send a supportive signal to a market still dizzy following the latest rollercoaster ride. However, in order to look for a recovery, silver needs to join in as well and, so far, it is struggling with the XAUXAG ratio trading above 75 ounces of gold to one ounce of silver, its highest level and silver’s weakest against gold since December.

Copper’s recent and price-supportive focus on potential supply disruptions in Chile eased as BHP workers at the Escondida mine, representing 5% of global output, voted to accept a final wage proposal. In recent weeks, the threat of supply disruptions have offset surging Covid-19 cases and worries about a Chinese slowdown hitting demand. With the risk of disruptions fading the market could, just like oil, see a period of sideways trading while the current virus outbreak is being brought under control.

While resistance has been established above $4.4/lb, support has been equally strong below $4.20/lb. Overall, however, we still see further upside with the price of High-Grade copper eventually reaching $5/lb, but perhaps not until 2022 when continued demand for copper towards the green transformation and infrastructure projects increasingly could leave the market undersupplied.

Crude oil remains one of the biggest losers so far this month, only surpassed by iron ore and silver. Following several months where the main focus was on OPEC+ and its ability to support prices by keeping the market relatively tight, the focus has once again reverted to an uncertain demand outlook caused by the rapid spreading of the Delta coronavirus variant, particularly in key importer China. A development that has led to growth downgrades and raise questions about the short-term demand outlook for oil and fuel products from the world’s biggest buyer.

While some of the major bulls on Wall Street see the disruption from the Delta variant being transitory and only negatively impacting demand for a couple of months, both the IEA and OPEC in their latest monthly oil market reports cut their demand outlook for the remainder of the year. The latest wave is leading to a renewed reduction in mobility around the world with the biggest concern being the flare-up in China, where a still-low number of infected has been met by an aggressive approach to contain the outbreak.

However, the flexibility exhibited by the OPEC+ group during the past year will likely prevent a deeper correction should demand growth suffer a bigger-than-expected headwind from the current outbreak. With this in mind and considering the lack of response from US producers despite high prices, we maintain a constructive view on the direction of prices into yearend.

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Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Delta Drives Cut in Oil and Copper Longs; Gold Steady Before The Storm

Saxo Bank publishes 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.

 

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, August 3. A relative calm week that saw stocks reach new highs with many companies beating earnings expectations, the yield on 10-year Treasuries reaching a new cycle low while the dollar softened.

All developments that occurred before explosive end of week developments, starting with Wednesday’s hawkish comments from Clarida, the Fed vice-chair, and topped up with Friday’s strong US jobs report. Commodities traded lower led by crude oil and copper in response to the rapid spreading of the delta coronavirus variant and its potential negative growth and demand impact, especially in Asia.

Commodities

The Bloomberg Spot index lost 0.5% during the reporting week to August 3, as the rapid spreading of the delta coronavirus variant in Asia and parts of the US raised concerns about demand for key commodities such as crude oil and copper. These developments were somewhat offset by gains in precious metals as both the dollar and yields softened before the sharp reversal on Friday. The grains market saw a strong adverse weather-related jump in wheat prices.

Overall, these developments resulted in no major change in the overall commodity exposure held by funds with selling of crude oil, soybeans, natural gas and copper being offset by buying in wheat, corn, sugar and silver.

Energy

Crude oil’s late July rally ran out steam after the market attention increasingly turned from OPEC+ to Asia, and especially China, where the delta coronavirus variant continued to spread thereby putting a cloud over the short-term demand outlook. As a result, the net long in WTI and Brent was cut by a combined 18.4k lots to 614k lots, thereby reversing one-third of what was added in the previous week. The bulk of the change led by long liquidation with no signs of increased short-selling activity.

The natural gas long in four Henry Hub deliverable swap and futures contracts was, despite surging prices, cut by 4% to 312k lots. This the fourth consecutive week of net selling has occurred while the price has continued to rally, and it closed the week at $4.14, the highest since December 2018 in response to hot weather and robust export of LNG raising concerns about insufficient stockpiles for the coming winter.

Following the worst week for crude oil in ten months, the market will be watching closely the monthly oil market reports from EIA on Tuesday followed by the IEA and OPEC on Thursday for any signs of changes in the demand outlook. The rapid spreading of the delta coronavirus variant in Asia and parts of the US has seen the market focus switch back to demand worries from OPEC’s ability to keep prices supported by keeping supplies sufficiently tight.

Metals

The gold long, just like the price, held steady with a small net addition of just 851 lots disguising a pickup in short selling interest with traders increasingly seeing the risk of a downside move in response to gold’s week-long failure to respond to a sharp fall in US Treasury yields. A worry that was confirmed on Friday, when the a very strong US jobs report helped push an already weakened price over the edge to record its biggest fall in seven weeks.

Silver meanwhile saw the net long receiving a 22% boost but with the sole driver being short covering. Copper was net sold with virus worries off-setting the risk of a strike related supply disruption in Chile, the world’s number one producer.

With the market focus on jobs over for now, the short-term direction of precious metals could be dictated by U.S. inflation – the other part of the Fed’s mandate – with July CPI due on Wednesday.

Today’s flash crash

Gold (XAUUSD) and silver (XAGUSD) already under pressure following Friday’s stronger than expected US jobs report, suffered a flash crash during the early parts of the Asian session. Following the weak close on Friday both metals had been left vulnerable into the opening, and with both Singapore and Japan on holiday the Asian opening offered even less liquidity than normal. Within minutes gold dropped more than 4% while silver slumped 7%, before pairing losses ahead of the European opening.

Traders have been rattled by golds strange behavior in recent weeks when falling yields failed to boost the price, while last week’s small turnaround in yields triggered an immediate and strong negative response. This sort of capitulation can often coincide with a significant low in the market but for that to happen economic data is required to turn more gold friendly.

09olh_cot2

Agriculture

Selling of soybeans were more than offset by strong buying of corn and both wheat contracts on KCB and CBOT. CBOT wheat futures traded close to the May high with adverse weather developments increasingly pointing to tighter global supplies due to expectations of lower output from top exporters Russia and the US. Rains have hurt grain quality in parts of Europe and China, while heat and drought have slashed the production outlook in Russia and North America. Apart from ongoing weather developments the market will also be watching a monthly supply and demand report from the US Department of Agriculture on Thursday.

Forex

A mild bout of dollar weakness in the week to last Tuesday, saw speculators reduce bullish dollar bets from a 17-month high by 18% to $3.6 billion. This before Clarida the Fed vice-chair’s hawkish comment on Wednesday and Friday’s across the board strong jobs report saw the 10-year Treasury yield climb to 1.3% and the dollar strengthen against it major peers, not least the Euro which ended the week at a four-month low.

The mentioned change was primarily driven by GBP and JPY buying. The sterling position returned to neutral while the yen short was reduced to a six-week low. Overall, and just like the previous week, the overriding theme was the reduction in positions, both long and short, as the peak summer holiday period continues to reduce risk appetite.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

World Food Prices Fall in June for First Time in a Year – FAO

The Rome-based FAO also said in a statement that worldwide cereal harvests would come in at nearly 2.817 billion tonnes in 2021, slightly down on its previous estimate, but still on course to hit an annual record.

The Food and Agriculture Organization’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 124.6 points last month versus a revised 127.8 in May.

The May figure was previously given as 127.1.

On a year-on-year basis, prices were up 33.9% in June.

FAO’s vegetable oil price index plunged 9.8% in June, partly on the back of a fall in palm oil prices, which were hit by expectations of output gains in leading producers and a lack of fresh import demand. Soy and sunflower oil quotations also dropped.

The cereal price index dropped 2.6% in June month-on-month, but was still up 33.8% year-on-year. Maize prices fell 5.0%, partly because of higher-than-expected yields in Argentina and improved crop conditions in the United States.

International rice prices also fell in June, touching 15-month lows, as high freight costs and container shortages continued to limit export sales, FAO said.

Dairy prices dipped 1.0% on a monthly basis, with all components of the index easing. Butter recorded the largest drop, hit by a rapid decline in global import demand and a slight increase in inventories, especially in Europe.

The sugar index posted a 0.9% month-on-month gain, reaching its highest level since March 2017. FAO said uncertainties over the impact of unfavourable weather conditions on crop yields in Brazil, the world’s largest sugar exporter, pushed prices up.

The meat index rose 2.1% from May, with quotations for all meat types rising as increases in imports by some East Asian countries compensated for a slowdown in China’s meat purchases.

FAO said the slight fall in its estimate for world cereal production this year was principally triggered by a sharp cut to the Brazilian maize production forecast as prolonged periods of dry weather weighed on yield expectations.

Global wheat production prospects also retreated this month, as dry weather in the Near East hurt yield prospects there. By contrast, the forecast for global rice output in 2021 edged up.

The forecast for world cereal utilization in 2021/22 was cut by 15 million tonnes from the previous month to 2.810 billion tonnes, still 1.5% higher than in 2020/21.

World cereal stocks by the close of seasons in 2021/22 are now expected to rise above their opening levels for the first time since 2017/18. “Higher maize stocks foreseen in China account for the bulk of this month’s upward revision to world cereal inventories,” FAO said.

For a look at all of today’s economic events, check out our economic calendar.

(Editing by Crispian Balmer)

 

Grains in The Crosshairs on Tight Supply Concerns

U.S. traded grain futures staged a comeback yesterday after two reports from the US Department of Agriculture raised the prospect for even tighter global supplies following the Northern Hemisphere harvest this autumn. The quarterly stock and annual acreage reports both came in lower than expected, and considering the U.S. is the world’s largest corn and second-largest soybean producer, it highlights the risk to supplies at a time where weather developments remain quite volatile.

The combination of lower planted acreage reducing the ability to replenish stocks now at the lowest since at least 2015, will result in the market becoming even more weather obsessed as changes up or down could still swing final production numbers by millions of bushels. Currently in the U.S. wet weather has hit parts of the U.S. farm belt, while drought risks are rising in northwestern areas and across Canada.

Why haven’t U.S. farmers responded to surging prices in recent months and gone all in to extract as much profit as possible following years of price disappointments? Perhaps the answer lies exactly in that, with farmers appearing to have become more disciplined following a number of years with low prices and excess supply. In addition, the general commodity rally has also increased the cost of fertilizers and gasoline, thereby potentially deterring farmers from expanding sowings to far into marginal and less yielding areas.

The Bloomberg Grains Spot index jumped 6.4% with individual prices of wheat, soybeans, and corn all rallying. Not least corn which after closing limit at $5.885 per bushel, a 6.3% increase on the day, has continued higher today.

Source: Saxo Group

Loss of positive price momentum since May helped accelerate an ongoing reduction in bullish grain and soybean bets held by speculators. Since the first week of January when the combined net-long hit a record 800k lots, it has been reduced by close to 50%. The bulk of the reduction being led by the soybean complex in response to slowing demand from China and President Biden considering to give refiners relief from U.S. biofuel laws, which require them to blend billions of gallons of ethanol and other biofuels into their fuel or buy credits, known as RIN’s, from those that do. The cost of RIN’s has reached a 13-year high, thereby putting some refineries at risk of bankruptcy.

Overall, however, the much-reduced involvement from speculators may add some tailwind to the price as strong fundamentals may drive an improved technical outlook, which is what many leveraged funds focus on the most when making decisions to buy or sell.

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Dollar and Metals Sold, Energy Bought Ahead of FOMC

Saxo Bank publishes 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.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 15. A week that covered the period up until last week’s FOMC meeting and the hawkish surprise it delivered. Apart from a weaker dollar which attracted additional short selling, some of the other markets, most noticeable commodities had already started to see rising risk adversity, while bond yields crept lower before starting a rollercoaster ride which eventually today has led it back to unchanged pre-FOMC levels. The Bloomberg commodity index traded softer by 2.2% as the rotation out of agriculture and metals into energy continued.

Commodities

The commodity sector saw a small amount of net selling ahead of last week’s FOMC meeting, but behind the 1% reduction to 2.4 million lots we found a week where speculators continued to rotate out of agriculture and metals, both industrial and precious, and into energy, especially crude oil. Chinese efforts to curb industrial metal prices, lower gold prices on reduced inflation expectations as the market “buy” into the transitory message from central banks, and improved weather and growing conditions in the U.S. have all led to long liquidation and reduced appetite for exposure in these sectors.

Energy

The combined net long in oil and fuel products (ex. natural gas) reached 977k lots, the biggest bet on rising energy prices since October 2018. While industrial metals have suffered what looks like a short-term setback on rising market intervention by Chinese authorities and reduced focus on reflation, the energy sector has increasingly become the go to commodities. This in the belief that OPEC+ in the near-term will maintain market tightness as global demand continues to recover, and later on due to increased concerns that lack of CAPEX spent on new production could leave the market undersupplied from late 2022 and onwards.

The combined net long Brent and WTI crude oil reached 737k lots, again a level of exposure that was last exceeded in October 2018. A tightening spread to Brent and speculation that storage levels at Cushing, the WTI futures delivery hub, could shrink further amid strong Midwest refinery demand helped drive a 35% reduction in the gross short, thereby supporting a spike in the long/short ratio to a three-year high at 22.8 longs per one short position. While highlighting the risk a market at risk of becoming one-sided it also shows the strong belief in higher prices currently being exhibited by investors.

Metals

Bullish gold bets were scaled back for a second week with profit taking and fresh short selling emerging ahead of the FOMC meeting and following the recent rejection above $1900. The 10% reduction reduced the net long to 114k lots, a four week low. Silver saw a small amount of buying while copper longs were cut to just 20k lots, a one-year low and some 71k lots below the peak from last October. Once the weak technical outlook, supported by an expected improvement in the fundamental outlook, starts turning the price may see a strong bounce from buyers returning.

Agriculture

The grain and soybean sector continued to deflate with speculators cutting the combined net long in corn, wheat and soybeans by 15% to 352k lots, the lowest since last October. While the wheat net-short extended to 8.4k lots it was corn and not least soybeans that saw most of the selling. This on a combination of improved weather raising production expectations and potentially a reduction in demand for biofuels to be blended with gasoline.

Forex

In forex, the flows across ten IMM currency futures and the Dollar Index were very mixed but overall they resulted in continued dollar selling with the net short reaching a three-month high at $19.3 billion.

However, as can be seen from the table below, speculators were in general risk-off mode across the major pairs with both long and short positions being reduced. This just the day before the FOMC sprung a hawkish surprise which helped send the Greenback sharply higher to record its fourth straight week of gains, thereby challenging the short dollar consensus trade.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Subdued Fund Buying Despite Strong Commodity Gains

Saxo Bank publishes 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.

The below summary highlights futures positions and changes made by hedge funds across commodities, forex and financials up until last Tuesday, June 1. A week that saw S&P 500 trade mostly sideways near its record high while the technology sector lost steam. Treasury yields rose ahead of jobs data with the market pondering for how long the Fed can continue adding support amid rising inflation. The dollar held steady while the commodity sector recovered strongly from the May correction.

Commodities

The commodity sector saw buyers return following the May correction with the Bloomberg Commodity index rising 3%. All sectors apart from precious metals and livestock recorded strong gains led by crude oil, copper, corn and coffee. In response to these developments hedge funds and large money managers increased bullish bets across 24 major commodity futures by 3% to 2,358k lots.

Given the strength of the recovery a relatively small increase that was led by crude oil (25k), gas oil (17k), natural gas (+11.7k), corn (21.9k) and sugar (12.5). Other contracts such as copper (-6.3k) and both wheat contracts (-5.7k) were sold despite recording strong price gains. Potentially a sign that investors despite being dictated by the price action to be long are feeling somewhat uncomfortable with prices at multi-year highs and breakeven yields (inflation) that has been drifting lower during the past three weeks.

Energy

Most of last week’s commodity buying was concentrated in the energy sector, most noticeable crude oil and gas oil. OPEC’s bullish demand outlook for the second half combined with the OPEC+ groups ability to control the price, helped drive Brent above $70 while WTI reached levels last seen in 2018. In response to these developments hedge funds increased their combined crude oil net long by 25.2k lots to 649.5k, a three week high but still some 88k below the recent peak in February.

While the overall increase in both WTI and Brent was primarily driven by fresh buying, the bulk of the buying occurred in WTI. This in response to tightening US market amid increased demand for fuel and low stocks at a time where production is expected to show a much slower growth trajectory than the one we witnessed during previous cycles of rising prices.

Agriculture

Despite recovering strongly from the late May correction, only small changes were seen in soybeans and wheat. Corn received most of the attention with the 11% price spike driving a 21.8k lots increase, mostly due to short covering with potential buyers showing a degree of hesitancy as we move into the US growing season. In soft commodities, buying benefitted sugar, cocoa and coffee, and just like corn the net buying in coffee was primarily due to the short covering with buyers hesitating chasing the 7% rally seen during the week.

Metals

Gold buying ran out of steam with long accumulation slowing to just 2.9k lots, a far cry from the 61.3k lots that was net bought the previous three weeks. Having surged higher by 240 dollar since early April on a combination of technical buying and short-covering from large trend following funds, the lack of fresh buying last week could indicate that this initial demand has now been met. Also worth noting the reporting week up until last Tuesday did not take into account the US economic data related price swings that hit the market towards the end of last week. At 129k lots, the gold long remains well below the most recent 284k lots peak from March last year.

Elsewhere in the metal space, silver longs were reduced for a second week while copper selling extended to a fourth week. During this time the net long has slumped by 58% to just 27.6k, the lowest bet on rising copper prices since last June when the rally had only just started to gather momentum.

Latest: Gold trades softer in early trading following an end of week rollercoaster ride where prices first slumped on emerging profit-taking, only to bounce back on Friday following what looked like “Goldilocks” US payroll date. Gold’s so far shallow correction following the strong rally since early April potentially highlighting the risk that all is not done yet on that front. The first key downside support level that will determine the underlying strength of the market is the 200-day moving average at $1842. Focus on the dollar and whether yields can maintain their Friday drop, President Biden’s spending plan and the market reaction to the G7 tax proposal.

Forex

In forex, the flows in the week to June 1 were mixed while the overall sentiment was still skewed towards additional dollar selling. The net short against ten IMM futures and the Dollar Index reached a 12-week high at $17.7 billion after speculators net sold $900 million. Despite trading softer on the week, speculators continued to buy euros (5.3k lots) with buying also seen in JPY (3k), CAD (3.9k) and CHF (1.5k), while selling reduced the sterling long by 6.5k lots.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

Start trading now

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Gold Long Extends Further; Ag Selling Picking Up Speed

Saxo Bank publishes 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.

The below summary highlights futures positions and changes made by hedge funds across commodities and forex up until last Tuesday, May 18. A relatively quiet week ahead of Wednesday’s crypto collapse and FOMC minutes saw stocks, bonds and the dollar trade softer, while the biggest changes were seen across the commodities sector where the month long synchronized rally increasingly showed signs of running out of steam.

Commodities

The Bloomberg Commodity index dropped 0.7% on the week as an emerging correction across agriculture commodities, led by soybeans and corn off-set gains in energy and precious metals. In response to these developments, hedge funds cut bullish commodity bets for a second week with the total net long across 24 futures contracts falling by 4% to a four-week low at 2.4 million lots. Broad selling across all sectors except precious metals was led by corn (25.3k lots), soybeans (25.2k) sugar (20.8k) and crude oil (22.2k) with most of the buying concentrated in gold (11.3k) and natural gas (12.1k).

Commodities Chart

Energy

Speculators cut bullish oil bets for a second week with the combined net long in Brent and WTI falling by 22.2k lots to 634k lots to a six-week low. In Brent, the reduction was driven by increased short selling with the gross short rising to the highest since November. The short-term outlook has once again deteriorated with the prospect for rising Iran production and OPEC+ production increases hitting a market still lacking the synchronized global recovery in in demand. Despite a strong recovery in fuel demand across the U.S. and Europe, continued Covid outbreaks in Asia will continue to impact the short-term outlook and not least the recovery in jet fuel demand, which looks set be very slow with restrictions and lack of interest flying intercontinental not going away anytime soon.

Fuel products continued to be bought with the net longs in gas (143k lots) and NY Harbor ULSD (24.5) both reaching the highest levels in 30 months. Natural gas meanwhile saw fresh buying as the contract made another and so far unsuccessful attempt to gain a foothold above $3.

Metals

Gold’s new found momentum helped drive a third consecutive week of fund buying, which resulted in the net long rising 12% to 107k lots, a 16-week high. Gold has not managed to put together a three week buying spree of this magnitude since last June, and it highlights the continued improvement in the technical outlook during a period of stable Treasury yields, a weaker dollar, and not least heightened volatility across crypto currencies. The improvement in the technical outlook was further confirmed this past week by the move above the 200-day moving average, last at $1845, and the breaching of the downtrend from the $2075 record high last August.

Silver gave back some its recently earned relative strength against gold in response to continued profit taking hitting the up some of the up until recently highflying industrial metals. The net long was cut by 3% to 46.5k lots while a second week of net copper selling reduced the net long there by 15% to 51.9k lots.

Agriculture

Emerging profit taking helped drive a 9% reduction to 963k lots in the net long held in ten major grains and soft commodities. Most noticeable was the accelerated net selling across the three key crops where 25k lots reductions in both corn and soybeans triggered a reduction in the net long to a December low at 458k lots. The bullish soybean momentum has eased with planting in the U.S. progressing at speed while wheat’s two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn meanwhile managed to hold steady supported by tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from the renewable fuel industry.

Agriculture

Forex

Mixed flows in the week to May 18 resulted in an unchanged dollar short position against ten IMM currency futures and the Dollar Index. Buying of EUR (5.9k lots) and CAD (7.5k) being offset by selling of JPY (9.2k) and GBP (3.3k).

Forex Chart

From a ten-year high at $36.8 billion on January 19, the dollar short against the mentioned futures contracts dropped to a $5.2 billion low five weeks ago before short-sellers re-emerged to take it back to the current $15.5 billion.

DXY

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The reasons why we focus primarily on the behavior of the highlighted groups are:

  • 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

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

Commodities Remain the Hot Property of 2021

The “everything rally” in commodities continues to gather steam with the Bloomberg Commodity Spot index rising for the fifth straight week to reach its highest level since 2011. Spurred on by multiple factors from a vaccine-led rebound in global growth, transportation bottlenecks crimping supplies, weather concerns in key growing regions along with rising inflation concerns and a speculative frenzy triggering increased investment demand.

All the major commodities traded higher this past week led by iron ore, Arabica coffee, corn and lumber. Metals of all colors rallied as well with copper reaching a record high while gold, supported by silver, managed to break above $1800. The energy sector came bottom with crude oil, rightfully so, struggling to break higher with virus outbreaks in Asia creating a very uneven demand recovery.

On a macroeconomic level, both the dollar and US Treasury yields provided further support with the Greenback trading softer and nominal yields holding steady. The latter receiving a great deal of attention with rising inflation focus sending 10-year breakeven yields to an eight-year high and real yields back down towards minus 1%.

One of the biggest concerns related to the current surge in global commodity prices is the impact rising food costs have on those populations and economies that can least afford it. The UN FAO’s Global Food Price index, which tracks a basket of 95 food quotations from around the world, surged higher in April to record an annual rise of more than 30%. Food inflation has not risen this fast since 2011 – when higher food prices helped trigger the Arab Spring –  with all sectors rising led by a 100% jump in edible oils, sugar 58% and cereals at 26%.

Grain futures in Chicago remain the key engine behind the continued rally across the agricultural sector. Persistent drought concerns in Brazil and strong demand from animal feed producers have buoyed the corn market while also adding renewed support to sugar and coffee prices. Corn, wheat and soybeans all trade at fresh eight-year highs, while Arabica coffee has reached a four-year high above $1.5/lb

Technical comment on Arabica coffee: After breaking previous resistance at $1.40, the uptrend has accelerated with several indicators supporting the underlying bullish sentiment. To demolish the current positive outlook, a close below $1.3950 is needed in the short term while the longer-term bullish picture remains intact above $1.20. Upside focus now the 2017 high at $1.57.

Source: Saxo Group

Copper reached a record high above $10,300 per tons on the London Metal Exchange and $4.72/lb in New York. Copper is front and centre in the rally that is currently driving raw materials to multiyear or even record highs. Being an integral part of the green transformation process through the rollout of millions of electricity-hungry vehicles over the coming years, copper has surged higher on a combination of both physical but also paper demand from investors looking for inflation hedges in markets with a strong fundamental outlook. An outlook that according the Glencore and Trafigura, two physical commodity titans, could see the need for 50% higher prices in order to provide mining companies the economic incentive to increase the search for additional supply.

Technical comment on High Grade: Copper’s strong uptrend during the past year has seen the price not only double but even accelerating since its latest correction last month. On daily charts, RSI divergence seems to be building which could indicate the short-term risk of the uptrend becoming exhausted, however, a trend change is not in the cards.

Source: Saxo Group

Brent and WTI crude oil both lagged the momentum seen across metals and agriculture, and despite increased calls for +70 dollar Brent, the market has sensibly adopted a wait-and-see approach. Before drifting lower, Brent got tantalizing close to $70/b, a level it briefly breached two months ago before suffering a 15% correction. The market, already supported by investment demand, has also increasingly been focused on reopening’s in Europe and the U.S. driving a strong recovery in fuel demand.

Oil bulls, however, may have to remain patient given ongoing production increases from OPEC+, the prospect for a renewed Iran nuclear deal leading to increased production, and not least the current risk to demand in parts of virus-hit Asia. Since late March, Brent crude oil has traded within a four dollar wide uptrend, currently between $66.50 and $70.50.

Precious metals

Having failed on a handful occasions during the past couple of weeks, gold finally managed to mount an attack strong enough to take it above $1800. While lower U.S. real yields and a softer dollar provided the fundamental tailwind the yellow metal needed support from in-demand silver, one of the best performing commodities this week. During the past month, the continued rally across industrial metals have supported silver relatively more than gold. This can be seen through the gold-silver ratio which has been declining since late March.

Silver is currently trading within a rising channel and after hitting the upper end at $27.55 it may need to spend some time consolidating before mounting a fresh upside attempt towards the 2021 high at $30. In order for gold to continue higher, it first needs to establish support above $1795 before chasing after long-term trend following short positions. The next level of upside interest is $1851, the 200-day moving average and 61.8% retracement of the January to March sell-off.

Source: Saxo Group

Ole Hansen, Head of Commodity Strategy at Saxo Bank.

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This article is provided by Saxo Capital Markets (Australia) Pty. Ltd, part of Saxo Bank Group through RSS feeds on FX Empire

How to Hedge Organic Corn and Organic Soybeans

The Chicago Board of Trade started offering corn contracts with formal rules in 1865, the same year The Jacobsen began publishing.

Beginning in 2021, for the first time, commercial entities that wanted to hedge or trade organic corn or organic soybeans will have that opportunity using The Jacobsen data via Stableprice.com.

Purchasing Calls and Puts

Stableprice.com will offer call (call spreads) and put (put spreads) options on organic corn and organic soybeans using The Jacobsen data to settle each trade. This process will allow consumers to hedge their exposure with triple-A rated insurance companies as their counterparties.

This first of its kind product will finally enable organic grain traders to trade derivatives using the most trusted publishing company in the business. The products are available now, allowing you to trade immediately using our trusted data. The types of options that are available are both call options and put options.

To hedge, you can either buy a call option on organic corn, which protects you if prices rise. Alternatively, you can buy a put option to protect you against organic corn (soybean) prices falling. You will pay a premium for the right to either buy or sell organic corn (soybeans) in both cases. The initial product offered by Stable price is a call spread or put spread, which means that the protection value is capped.

For example, you can purchase an $8-12 call spread on organic corn, capturing any movement between $8-$12 per bushel. Above $12, you will not be protected.

Average Price and European Options

Stableprice.com will offer both average price options and European style options. Average price options measure the average price calculated during the month versus the strike price, while European style options measure the strike price versus the last trading day of the month. If you are a Premium client of The Jacobsen we will calculate the averages for you. You will also see historical averages that can help you determine the most accurate strike price to use when you purchase calls and puts.

Triple-A Credit

If you trade options with Stableprice.com, you will face a counterpart backed by Triple rated insurance companies, including AON. This product provides the peace of mind the industry has been waiting for.

Additionally, companies with exposure to fats, oils, hides, and hemp can hedge their exposure using similar concepts. The Jacobsen is one of the few companies with IOSCO certification and is considered the most trusted commodity price discovery source. If you are looking for more information about how you can hedge your organic corn or organic soybean exposure, please contact David Becker at david@thejacobsen.com.

Organic Corn Prices Remain Depressed Despite Decline in Organic Cracked Corn Imports

Organic corn prices remain depressed despite a decline in organic cracked corn imports. Organic cracked corn imports increased steadily during the ramp-up in organic poultry demand in the United States during the 2017/2018 marketing season but have tailed off during the 2019/2020 season.

There was a dearth of organic cracked corn imports in September 2020 which was in line with the Jacobsens expectations. Despite the lack of organic cracked corn, organic corn prices have remained depressed. The Jacobsen estimates that no organic cracked corn imports arrived in September in the United States, which compares to approximately 1,600 tons which appeared in September of 2019. Historically, September has experienced robust volumes of organic cracked corn imports. For example, in September of 2018, approximately 22K tons of organic cracked corn was imported into the US.

While organic cracked corn remains a bone of contention, especially for US domestic organic farmers, the volume has declined in the past marketing year. The Jacobsen estimates that organic cracked corn imports for the 2019/2020 season were down 27% year over year, compared to the 2018/2019 marketing year.

The decline in cracked corn imports is likely a function of the drop in organic whole corn prices and the robust increase in organic whole corn available in the US. With the harvest season upon us, organic corn prices will continue to face pressure unless demand accelerates quickly or, organic cracked corn and whole corn imports moderate throughout the 2020/2021 season. The downturn in organic corn prices has not impacted the strong demand and upward price movements of organic soybeans.

The 2019/2020 season was littered with low test weight organic corn, that was sold at a discount. The Jacobsen does not expect the 2020/2021 season to see this same phenomenon, which could help buoy organic corn prices if demand remains robust and imports begin to decline.

Organic Corn Prices Continue To Slide Despite Rising Demand from Retail Consumers for Groceries

Organic corn prices remain heavy, and the coming harvest will likely further weigh on organic corn prices. The potential damage to crops in Iowa will likely be offset by a bumper crop in Minnesota according to Merchandisers. Organic corn prices are hovering near the $6.50 level, with bids closer to $6 picked up at the farm.

There is a plethora of organic corn that is still in bins ahead of the new-crop season. The Jacobsen currently sees the organic corn carryover at 3.3 million bushels with less than 2-months before the completion of the old-crop season. There have been few contracts for new-crop reported recently and for prices to retrace back to the $7-handle could be a challenge.

Organic Animal Proteins Take a Large Piece of the Pie

The decline in organic corn prices comes despite rising demand for organic animal proteins (organic chicken, organic eggs, organic dairy) sold at supermarkets, and big-box stores are has grabbed a larger piece of the pie according to The Jacobsen.

Despite this upward trend, there has been little upward movement driving organic prices.  While food services continue to suffer and the supply chain remains fragmented, supermarkets and big-box stores are thriving.

In its latest financial report, Target reported that its private-label grocery brand, Good & Gather, hit $1 billion in sales after launching in September of 2019. Same-store sales surged year over year rising a robust 20%. At Walmart, E-commerce business jumped 97% year over year, boosted by people ordering groceries online to pick up at store parking lots. Both Walmart and Target carry a wide array of organic milk, organic cheese, organic butter, and yogurt, along with organic chicken and organic chicken eggs.

Organic animal proteins sold at grocery stores are taking a larger part of the overall pie, rising to 7% on average in the Q2. This compares to approximately 5% in 2018 and 5.5% in 2019. The upward trend should continue to perpetuate as more products become available.

Despite the drop in organic corn prices, organic soybean prices continue to remain buoyed as demand remains strong and supply is still scarce.