Each week, the Commodities Futures Trading Commission reports the long and short positions of the large speculators, the small speculators and the commercials.
Over the years as the report has evolved, the index funds have been included options these entities may trade.
The report is released every Friday afternoon at 2:30 p.m. in a report format titled as “The Commitment of Traders Report.”
This report can be an invaluable tool to producers and speculators alike. Each of the entities is required to report their positions to the CFTC so that transparency can be achieved in
The commercials in the report are the major players in the market, the guys who have all the inside knowledge, guys like Cargill, Kelloggs, ADM, and other end users of products who have a legitimate reason to hedge or own the products.
The other main competitors are the large speculators, generally the large trading funds, major banks or private equity firms and the small speculators.
The small speculators are normally those who do not trade big enough positions to be considered large speculators and hedgers, or, who do not hedge big enough positions to be considered commercials.
This group can and does include large feedlots.
We utilize the COT report to recognize when the commercials believe there is a fundamental reason for a rally or a fundamental reason to hedge the products our clients use and grow.
This marketing tool is rarely utilized by other firms in the industry, but it helped clients of Midwest Market Solutions recognize the rally potential of the grain complex last May – when many other companies were making sales – and also helped our clients’ May sales during the summer drought rally when many firms were predicting prices would move to new highs and didn’t.
Here is a sample of our latest COT analysis:
“Major shakeups and changes in the COT report. The previous week saw commercials selling into the corn and soybean rally as evidenced by their adding to short positions.
“This week however, saw commercials quick to be buyers of weakness in corn and wheat prices. This is not unexpected as in last week’s commentary, we noted the ‘commercials should be looking to the month of March when wheat breaks dormancy and the commercials want to be positioned for a fundamental rally.’
“The heavy buying in corn and wheat has pushed the commercial index to a bullish reading for both corn and wheat, while the break in prices has forced the public sentiment into a bearish mentality, which we know is actually bullish.”
Corn closed the week $.10 1/4 lower. Last week, private exporters did not report any private sales.
In the weekly export sales report, corn sales shows 8.5 million bushels slated for 2012/13. This is below the 12.1 mb that is needed to stay on pace with the USDA forecasts of 900 mb.
Corn is struggling during February, which is the seasonal tendency for grain prices. It is widely anticipated ending stocks will significantly increase this year if the U.S. has a normal growing season.
Dryness in the Western Corn Belt remains corn’s best bet for a spring and summer rally. The WCB is locked in a drought and until it is broken, limited downside risk remains for the corn market.
Upside is limited until the crop is threatened as exports remain poor, so choppy trade is expected until farmers begin seeding the 2013 crop.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop.
They re-owned 50 percent of the 2012/13 corn crop with July calls.
Soybeans closed the week $.28 lower from last week. Last week, private exporters announced a cancelation of 250,000 metric tons of soybeans sold to an unknown destination for the 2012/13 marketing year.
In the weekly export sales report, soybean sales were 35.9 mb. This is above the 2.9 mb that is needed to stay on pace with the current USDA forecast of 1.345 billion bushels.
The National Oilseed Processors Association reported January soybean crush was reported at 158.2 mb, below the average market expectations of 160.6 mb, and toward the lower end of the range of ideas of 157.0 to 163.5 mb.
However, the January crush was still up 11 percent from last year’s level, with September-January total crush now up 10 percent from a year ago.
Weather in South America has improved with rains in Argentina and Southern Brazil, which will help fulfill maximum yield potential.
This should weigh on soybean prices until harvest matures. Prices may remain weak in the U.S. until April, when weather will become more important to pricing influence.
Better marketing opportunities lie ahead for U.S. producers.
Strategy and outlook:Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. They should re-own 50 percent of 2012/13 production
with July soybean calls if July futures hit $13.75.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.