Gasoline and wheat near historic extremes

By Floyd Upperman
The Commodity Futures Trading Commission (CFTC) publishes the Commitments of Traders (COT) report each week. The report divides the open positions in futures markets into three categories: commercials, non-commercials, and non-reportable. 

Commercial traders, or hedgers, tend to operate in the cash market (e.g., grain merchants and oil companies that either produce or consume the underlying commodity).

Non-commercial traders are large speculators (“large specs”) such as commodity trading advisors and hedge funds — professional money managers who don’t deal in the underlying cash markets but speculate in futures on a large-scale basis. Many of these traders are trend-followers. The non-reportable category represents small traders, or the general public.

The chart below shows the relationship between commercials and large speculators on Aug. 24. Positive values mean net commercial positions (longs minus shorts) exceed net speculator holdings, based on their five-year historical relationship. Negative values mean large specs hold more positions than the commercials.



In gasoline futures (RB), commercial long positions dominated large spec short positions, which might be bullish. On the other hand, in wheat futures (W) large spec shorts outnumbered commercial longs, which could be bearish. Interestingly, gasoline futures traded near its 2010 low, while wheat traded near its 2010 high. The chart suggests those markets could be poised to reverse direction.

Note: The CFTC recently improved the report, in part, by removing swaps dealers from the commercial category. The commission has also clarified the large speculator category by highlighting the role of managed money vs. other participants.




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