Weekly COT Highlights – Week Ended Tuesday, October 13
Main Takeaways this Week
This is an important week. If you aren’t a regular reader, take the time to review the corn commentary in particular as it is a classic example of why we follow the COT, how we interpret the report, and how you can use our commentary to guide your decision making.
This should be a good lesson to guide your interpretation, in particular, of soybeans, cotton, hogs, soybean meal and rice. These markets are all at or near major inflection points and warrant real attention.
Corn
Outrageously aggressive selling from the specs, this week net sellers of over 70,000 contracts, bringing the 4 week total net selling to 177,411 contracts. Even more troublesome is the significant building of new short positions, an indication that the large speculators see additional downside in prices.
Index funds have also been running for the hills. Over the last 6 weeks they were net sellers 5 times, combining for a net selling of 92,798 contracts.
This is about as textbook as it gets. As specs reached the net long 300k mark, we noted that they had only exceeded this level during the 2020 crazy, and that this over extended long position sizing could lead to a massive sell off. This was a large part why we advanced sales and aggressively told subscribers and clients to make catchup sales.
Unfortunately, at this point it still appears that specs are in selling mode and will continue to pressure prices. We don’t want to believe that will happen, but more often than not marketing go higher or lower than you think they should. Looking at this report in a vacuum, more pressure is ahead.
It is worth rereading these corn comments:
Sep 8 COT Newsletter Warning
Sep 15 COT Newsletter Warning
Soybeans
Let’s learn our lesson from corn, so we can be prepared for what is about to come in soybeans. Obviously, this is not a guarantee, but the setup in soybeans right now is extremely similar to where corn was in September.
Futures prices remain elevated. Large speculators maintain a massive net long position, and have not yet begun their aggressive unwinding. I know we’re not at contract highs. But not selling here is like not selling Dec corn at $5.20 because it was at $5.45. Now its at $4.75 and still looks weak.
Large specs sit roughly 20,000 contracts shy of their extreme 2020 position, after selling 15,362 contracts in the week ended Tuesday, and likely significantly more the remainder of this past week. Add harvest pressure to this situation and we fear it could get ugly.
Wheat
Five straight weeks of spec selling in Chicago and KC wheat has continued to pressure prices lower, despite several notable bullish fundamentals. The Chicago contracts are all still above their August lows which we hope will provide support, but KC and Minneapolis blew through those levels and have no nearby support. It doesn’t look great. At the same time, this has already been a huge move so making big decisions here is likely not the best path forward. If you’re well behind our 90% sold level, very small cash sales, or better yet hedge protection that can later be lifted, may be a better approach.
Cotton
Think speculators are driving the price action?? Take a look at the blue and red lines below, uncanny.
The good news is specs have relaxed the last two weeks, which followed a four week stretch that brought with it net selling of a combined 42,021 contracts. The bad news is specs are still holding a massive net long position and we are smack dab in the middle of harvest.
The COT report helped us nail the top in this market, and we did exit our short positions, in the 2026/27 and 2027/28 crops on October 2nd and 3rd. Futures have found some footing, chopping sideways since then.
At the moment we are out of this market, but working a sell stop just like the order that got us short on 9/2. Our fear is that if futures break through the recent lows, it could spur another wave of speculative selling.
Rice
Again, think speculative buying is driving this market? We’ve been patient on marketings and aside futures for some time now. A few more weeks of spec buying though, and we’ll be near the all time record net long early 2024. A soon as we see signs that specs are losing their favor with rice, or if we see a signficant break in the trend that could lead to speculator liquidation, we will be advising additional sales and hedges. Be alert.
Soybean Meal
Specs were modest sellers this week, bringing them down just a bit from last week’s record net long position. We are very concerned that this market has considerable downside. To repeat our position from the last few weeks, buyers should absolutely be hand to mouth. Wait for this market to break, it is likely going to very soon.
Lean Hogs
Another week, another new record net short in the lean hog complex. Something HAS TO GIVE. Large speculators are holding a net short of -85,425 contracts. Prior to setting several new record net shorts on this move (prior to 7/7), the all time record net short held by specs was -47,112.
They are nearly DOUBLE the previous record net short. On the other end is commercials at record net long. We probably don’t have to tell you this, but this is a “rubber band ready to snap”, and for futures prices that means to the upside. This we know, but when will it snap? Well, that’s the real question. We would guess very soon.
Cattle Complex
Not much to report here. Would classify these setups as mildly supportive, but spec behavior lacks any conviction, particularly in live cattle.
