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.
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, LEAN HOGS, CORN, and LIVE CATTLE markets experienced the most BULLISH relative positioning change in the CRB week-over-week:
After a pullback from the YTD highs, both Live Cattle and Lean Hogs have rallied again with the market chasing the move:
- 1-month: Cattle +3.4%, Lean Hogs +11.8%
- 3-month: Cattle +5.2%, Lean Hogs -17.2%
- YTD: Cattle +15.7%, Lean Hogs +24.1%
Lean hogs contracts trading +2.9% this morning after finishing the week +26bps last week. The market is positioned more bullish week-over-week (z-score +1.48x 1-year average), but the forward looking expectation 1-year down the road is pricing the largest drop in prices of all commodities in the CRB
The SUGAR, SILVER, and GOLD markets experienced the most BEARISH relative positioning change in the CRB week-over-week:
- USD Bulls: Consensus chasing the USD move (+6.9% move off the May lows) on the back of multiple ECB Easing measures
- EURO Shorts: CFTC data shows a market that is -2x standard deviations short of the Euro
- Gold: Gold tracking closely with the dollar:
- -5.9% vs. USD +6.9% from May 8th USD YTD low
- GOLD/USD r-squared correlations: -0.91, -0.94 1/3-month duration
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 RBOB 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, RBOB GASOLINE, and COCOA 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.
Base Metals: Decrease in open-interest last week showing large capitulation/covering in aluminum, copper, and nickel on the sell-off (all three finished lower on the week). The entire base metals complex is breaking down.
We like copper on the short-side from both a fundamental and quantitative perspective (Bearish TREND set-up in our model):