So many factors can support or sink the grain markets. Beyond the basics of USDA reports and supply and demand influences, keep an eye on the weekly Commitments of Traders (COT) report. Released by the Commodity Futures Trading Commission on Fridays at 2:30 p.m. CDT, it can help you understand how the funds impact the market.
The COT report details the open interests in futures and options at the close of business each Tuesday. Member firms, which include futures commission merchants, clearing members, foreign brokers and exchanges, report their open or outstanding (not closed or delivered) options and/or futures contracts.
“Farmers should watch the COT report, as it can explain why the market is moving in a direction counter to what would make fundamental sense,” says Scott Harms, ag risk specialist with Archer Financial Services. “Nothing operates in a vacuum. No one has a perfect formula to predict price direction. You need to glean information from all these areas to formulate an opinion and solid marketing plan.”
The COT report is a combination of four main reports: legacy, supplemental, disaggregated and traders in financial futures. Harms suggests tracking the supplemental report, which includes 13 agricultural commodity contracts and breaks down the open interest into three categories: index, commercial and non-commercial traders.
“The most relevant is the non-commercial category,” he says. “They are the traders moving in and out of the market from the short side and the long side.”
For example, a geopolitical issue can cause the funds to pull out of short positions, which could make prices jump higher. But, these price moves tend to be quick.
“The COT report is more important now than it was 15 years ago when there was more pit trading,” Harms says. “Now it is largely a guessing game until the numbers are released on Friday.”
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