What to Know About the Commitment of Traders Report

May 3, 2018 05:00 AM
 
To understand how the funds impact the markets, consider tracking the weekly Commitments of Traders report, released by the Commodity Futures Trading Commission.

So many factors can support or sink the grain markets. Beyond the basics of USDA reports and supply and demand influences, what other information and reports should you watch?

To understand how the funds impact the markets, consider tracking the weekly Commitments of Traders (COT) report, released by the Commodity Futures Trading Commission (CFTC) on Fridays at 2:30 p.m. CDT.

The COT report breaks down the open interests in futures and options at the close of business each Tuesday. The data is then compiled and released on Fridays. 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.

For example, look at the current corn market. Prices are holding steady and even increasing, as perfect weather is aiding timely corn planting in many areas. Why? One reason might be that the wheat traders are bailing out of short wheat positions, Harms says. That short-covering strength is spilling over into corn and somewhat to soybeans.

“Nothing operates in a vacuum,” Harms says. “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 includes 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: commercial, non-commercial and index traders. (See the April 24 Supplemental report).

“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. You don’t want to ignore where the fund position is, because it can create a great pricing opportunity.”

For example, a geopolitical or trade issue can cause the funds to pull out of short positions, which could make prices jump higher. But, these price moves tend to arise and disappear quickly.

“The COT report is more important now than what it was 15 years ago when there was more pit trading,” Harms says. “Now that everything is electronic, it is largely a guessing game until the numbers are released on Friday. Even though the data is three days old, you can extrapolate the current trend or bias in the trade.”

Some traders and analysts do historical tracking of the COT reports, but Harms says a weekly analysis should give you enough information for your marketing plan.

“There are short-term trends you can glean from the data,” he says. “But, we can’t predict what the funds will do.”

 

Check today's prices in AgWeb's Commodity Market Center.

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