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 “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.
**NOTE** Due to the shortened holiday week last week, the data below represents positioning reported by the CFTC on Friday, December 26th (reflecting data through Tuesday, December 23rd)
- The COTTON, WHEAT, AND COCOA markets experienced the most BULLISH relative positioning changes week-over-week
- The ORANGE JUICE, LIVE CATTLE, AND LEAN HOGS markets experienced the most BEARISH relative positioning changes week-over-week
2. Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.
- The LEAN HOGS, SUGAR, AND RBOB GASOLINE markets are positioned for HIGHER PRICES near-term
- The HEATING OIL, LIVE CATTLE, AND NATURAL GAS 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.
**Note** While the spread between front month prices and contracts expiring 1-year down the road in Brent and WTI crude oil continues widening, we believe the contango in the futures curve is at minimum in part to the fact that markets aren’t being made, and are not nearly as liquid 1-year out. Liquid, more active front-month contracts can respond to the heightened amount of volatility in a shorter time period. The pattern of the back end of the futures curve adjusting more slowly to cash market prices is common at the big inflection points. When oil prices were up ~+12% in the middle of the year 2014, the curve was in backwardation.
- The BRENT CRUDE OIL, WTI CRUDE OIL, AND NATURAL GAS markets are positioned for HIGHER PRICES in 1-year
- The LEAN HOGS, LIVE CATTLE, 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.
Ben Ryan
Analyst
