Weekly COT Highlights
Corn
A bit of a slow week for corn, both in position movement and price action. Specs have been steady buyers since Independence Day, having been sellers just three times over that span, making this week the 4th. Those three breaks amounted to net selling of ~20,000, ~20,000 and ~28,000 contracts, so we don’t feel too concerned that this is a significant shift in sentiment. Of the last 13 weeks, this was the second smallest change in net position. What we don’t want to see is two consecutive weeks of selling, or selling on a larger scale.
Soybeans
Large specs were modest net sellers with new short growth outpacing new long growth. The fireworks in price action this week came after Tuesday, as most contracts closed and new life of contract lows, except for the lead month, January. Until Jan breaks through $9.73 we are hesitant to advise additional protection. There is no obvious takeaway from the COT setup in this market at the moment.
Wheat
Large specs emerged from dormancy last week becoming significant sellers, and continued selling this week, though failing to significantly pressure prices lower. While we don’t like seeing spec selling, the reality is from a total position perspective they are in no-man’s-land. From a chart perspective, most contracts of all three traded classes look to have established a double bottom with their August lows, but at the same time there is no arguing what the trend is… it’s down. We had significant hedge profits and lifted those this week, but if we break contract lows we will be forced to reestablish.
Cotton
Speculators woke up and chose violence after doing very little for months. Through both long liquidation and new shorts specs were net sellers of 16,857 contracts, the most since April by scale and direction. Specs never really left the “historically short” territory they were in, but are now deeper into that zone, but we expect this was a one off.
Cotton prices charged lower late last week to challenge their July and August lows, because specs were so short we felt good lifting those hedges Monday with intent to reestablish if the lows were violated. Turned out to be a good move (for now) as the March contract posted a key reversal higher on Tuesday and followed through higher the rest of the week. This technical action might be enough to spur a short covering rally, but we will need some help fundamentally to move prices much higher.
Rice
We discussed last week that specs held an all time large net short position which accounted for 41% of total open interest. That was short lived, as specs covered about a third of that position, almost entirely through short liquidation. The short position building sent Jan futures down to 14.40, and the short covering rallied prices to 15.20. This is significant price action in a market that did pretty much nothing from July to mid-October.
Soybean Meal
Spec selling was significant again this week, now the fourth consecutive and 6th of the last 7 weeks of spec selling. Specs are entering oversold territory compared to historical extremes. This week they sold nearly 30,000 contracts, sit at a net short of -66,987 contracts which compares to their all time largest net short of -86,409.
From a chart perspective futures are in a 5th wave down and look to be making a bottom. Most contracts posted a 5 wave buy signal on November 18, but we are waiting to see some follow through to the upside before advising additional meal purchases. We expect that we likely will this week, and if you have meal needs uncovered, you should consider establishing some protection. If you do so in the futures market the exit is the recent lows, very nearby.
Lean Hogs
Is it finally over? What has to be one of the most remarkable buying sprees for large specs in any commodity appears to have come to an end, and the price action matched that, prompting us to add significant hedge protection earlier this week.
To recap the numbers as we have every week, large specs were buyers for consecutive weeks totaling 112,488 contracts, and 17 of 18 weeks totaling 118,186 contracts.
On the previous release specs were sitting net long nearly 85,000 contracts, about 16,000 shy of their all time largest net long. Given the toppy price action and profits built into the spec position, we could see aggressive long liquidation that pressures prices lower. That said, price action following Tuesday (the day this data is current) was positive and challenging contracts highs in all contracts but December. A close at new highs and we may have to lift protection, but even if we do we will be eager to re-establish. This could be a big and fast move to the downside.
Live Cattle
Spec buying continues here. They’ve been buyers 8 of the last 9 weeks totaling 60,789 contracts. As previously pointed out, the large spec short has remained basically untouched, while the size of the long position varies greatly. This setup, and the technical picture, is very similar to lean hogs in that prices appear to be making a major top, but recent strength has future challenging significant highs. This is not a complex to be complacent in. The risk of long liquidation is significant, as is the technical downside in prices. Be alert for recommendations.
Feeder Cattle
Spec activity in feeders mirrors that in cattle and hogs. They were again buyers this week to the tune of 3,394 contracts, making it the 9th week of the last 10 that they were net buyers for a total of 17,196 contracts. One difference between live and feeders is this has been a combination of short liquidation and new buying. The bottom line is this market might have a lot more upside, where the live cattle and hog complex are at greater risk of an immediate sell off.
