Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market 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.
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1. CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and 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, speculative positions.
The Cotton, Live Cattle, Lean Hogs markets experienced the most BULLISH relative positioning change in the CRB Index week-over-week.
- Sentiment in the cotton market is joining the rally (+6.9% last week and +12% over the last month)
- The CFTC Commitments of traders report released last Friday reflected the largest relative positioning change of any commodity in the CRB (remember the data reveals market positioning through last Tuesday rather than a snapshot at week-end)
- Timing: Australia, which is the seventh largest cotton producer, cut production estimates for 2014-15 by -29% from its most recent June estimate. The news broke during the day last Tuesday which may explain the change in sentiment by the close of the session.
- The lean hogs and live cattle markets have shown a significant divergence over the last month (Lean Hogs -7.3% vs. live cattle +4.4%). Spot-1Yr basis shown below outlines the bearish expectation for both markets moving forward
The Sugar, Copper, Soybeans, and Natural Gas markets experienced the most BEARISH relative positioning change in the CRB week-over-week:
- Sugar: Bullish sentiment in the sugar market was cut by -2/3rds week-over-week despite the huge divergence in the price spread between spot prices and contracts expiring in 1-year which are trading +28% higher.
- Natural Gas: Market -9.3% shorter week over week and -8%/-23%/-37%vs. 1/3/6-month averages
- Increase in Stockpiles: reached an 11-year low in March of this year
- EIA data through last week shows 2.8 trillion cubic feet of stockpiles vs. ~800K at March Lows
- Increase in Stockpiles: reached an 11-year low in March of this year
2. Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.
- The Sugar, Corn, Wheat, and Coffee markets are positioned for HIGHER PRICES near-term
- The Lean Hogs, Cotton, and Gasoline markets are positioned for LOWER PRICES near-term
3. Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.
- The Sugar, Corn , Wheat, and Coffee markets are positioned for HIGHER PRICES in 1-year
- The Lean Hogs, Live Cattle, and Cotton markets are positioned for LOWER PRICES in 1-year
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 “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most 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.
Ben Ryan
Analyst
