Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.
1. CFTC Net Futures and Options Positioning For Commodities in the CRB Index: The U.S. Commodity Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday afternoons. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close). The table below includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “large speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large positions.
- The copper, sugar, and soybean markets are positioned shorter through Friday’s release. The market took comments from Yellen and Draghi at last week’s symposium as USD bullish and bearish for Gold which is currently testing its @Hedgeye $1271 Trend line of support. Gold has sold off ~-1.5% over the last week and we anticipate a market that is relatively shorter week-over-week when new contract data is published on Friday.
- The coffee, cocoa, and orange juice markets were positioned relatively more bullish according to Friday’s report. The net-commercial length of both cocoa and coffee futures and options positions are sitting much longer than their trailing 1-year averages. we anticipate more producers have come to hedge cash market exposure with the uncertainty of the future crop in Brazil. Coffee is +65% YTD.
2. Spot – Second Month Basis: Measures the market expectation for forward looking prices in the near-term.
- The sugar, coffee, and corn markets are positioned for higher prices near-term.
- The soybean, lean hogs, and RBOB Gasoline markets are expecting lower prices near-term.
3. Spot – 1 Year Basis: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
- The sugar, corn, and wheat markets reflect the expectation for higher prices 1-year in the future.
- The lean hogs, soybeans, and live cattle markets reflect the expectation for lower prices 1-year in the future.
Lean hogs spot prices have already retreated ~-27% over the last month and are expected ~-18% lower in 1-year. We highlighted the recent developments of a potential game-changing vaccine to the PEDv virus that affected an estimated 5,000 farms in 30 states across the country. A link to that article from July 31st is included below:
4. Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as the total sum of “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. A majority of the open interest is created from large speculators or participants who are either: 1) producers/sellers of the physical commodity hedging their cash market exposure or 2) large speculators who are directionally-biased on price.