CFTC Blog

The Commitments of Traders (COT) report is a weekly publication of the United States Commodity Futures Trading Commission (CFTC) that gives insight into market sentiment and future price changes. Market participants are divided into three categories in the report: Commercial Traders, Non-Commercial Traders, and Non-Reportable Traders. The CFTC gathers information on these groups' positions in futures and options contracts, including the amount of contracts long and short held by each type of trader.

Commercial Traders: These are often the underlying commodity or financial instrument's producers or customers. They use the futures market to protect themselves against price swings and typically are not speculators.

Non-Commercial Traders: These are major speculators, such as hedge funds and institutional investors, who speculate in the futures market.

Non-Reportable Traders: This category includes small speculators and traders who do not meet the reporting requirements set by the CFTC.

In addition, the report contains total open interest, net position, and historical statistics. The report is published weekly, usually on Fridays, and contains statistics as of the previous Tuesday. The major goal of the COT report is to give transparency and aid in the monitoring of suspected market manipulation or excessive speculating issues. Traders and investors use it to measure market sentiment and to hedge against price hikes.

However, the COT report is only one of many tools used for market analysis, and its utility varies based on the market and conditions. To make informed trading decisions, traders frequently mix COT data with other forms of technical and fundamental analysis.

The report can be found here at the government website:? https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

A summary of the major markets is published on the CME Group website here: https://www.cmegroup.com/trading/agricultural/files/ht_charts/futoptcot.pdf

At Trilateral, we publish a weekly recap of the report and track trends that prove valuable.?

Every market has its own set of idiosyncrasies and characteristics.? There are many ways to analyze the data in the CFTC report, but here are a few signs we focus on when making procurement decisions.

1.)??? When commercial firms get long, it often leads to major rallies in price.? This relationship does not necessarily hold 100% of the time, but it does occur the majority of the time and the repercussions are often so drastic that you want to be on the right side of the trend.? In summary, if commercials are getting long a commodity, be more aggressive with your decision-making when procuring your ingredients.??? Evidence can be seen in the 5 years of the cocoa market.

2.)??? If hedge funds are relatively flat, a new market trend can be exacerbated and pushed well beyond levels imaginable from pure fundamental analysis.? An old saying still rings true today, “a market can stay irrational longer than you can stay liquid”.?? Hence, the need for awareness of large positions and prudent risk-management.?

3.)??? If Large Speculators get too long or too short, it is often a precursor to a reversal and vicious move in the opposite direction due to fund liquidation.? We like to say “if everyone is long a market who is left to buy it?”? ?We track large speculators’ relative positions with an oscillator.? When large speculators, as a whole, get too long, it pays to have a short stance or passive buying strategies.? When large speculators are too short, it pays to be aggressive in purchasing.?

With this week’s current report, notables on the radar are the following:

·???????? Commercials are getting long KC wheat, corn, and now soybeans.? Don’t be surprise if a large rally in the grains is on the horizon.

·???????? Large Speculators are excessively long cocoa and near the “sell” zone of our oscillator.? Beware of large drops due to fund liquidation.? Purchase hand-to-mouth until market shows stability at lower prices.

·???????? Large Speculators are excessively short wheat and in the buy zone.? Add a bit of urgency to your buying strategy as liquidation of these positions will cause price spikes.