Spread Edge Capital specializes in seasonal spread trading across a wide variety of commodity markets. A spread trade is the simultaneous purchase and sale of the same commodity with different delivery dates.  SpreadEdge publishes a weekly Newsletter that provides several seasonal spread trade opportunities every week.

Overview

Each week the SpreadEdge Newsletter documents an extensive list of seasonal, technical and fundamental indicators for the various commodity markets.  This article will focus on several Grain markets that are at their highest hedge fund position estimates for the past 52 weeks.  

Hedge Fund Position Estimates

The Commitment of Traders (COT) report, issued by the Commodity Futures Trading Commission (CFTC), offers a weekly snapshot of the positions taken by different market participants in the U.S. futures markets. Published every Friday at 3:30 PM Eastern Time, the COT report reflects positions held as of the previous Tuesday's closing business hours.  Peak Trading Research assesses the latest COT report, examining alterations in price and open interest to provide an appraisal of net fund positioning daily.

• Corn, Kansas Wheat, and Soybean Oil are at their highest hedge fund position estimate for the past 52 weeks.
   

• Corn has an estimated net short position of (48,251) contracts which surpasses the previous high of (78,569) from late May.   Note that Corn dropped (20.8%) the last time a new hedge fund high was reached.  Note also that the current price action in Corn is very much disconnected from the high hedge fund position estimates.

• Kansas Wheat has an estimated hedge fund position estimate of (8,044) which is also the highest for the year and slightly higher than the positions in late May.  As with Corn, Kansas Wheat sold off sharply shortly after reaching the previous record level.   Note also the disconnect between current prices and the hedge fund estimate.

• Soybean Oil has its highest hedge fund estimate at 29,346 net long contracts which surpasses the high of 13,124 contracts at this time last year.  Note that hedge funds sold over 70,000 contracts over the next 17 weeks (from late October to late February).    

Summary
For all 3 of the markets highlighted, hedge funds have aggressively added new longs for the past 3 months.  Despite these heavy purchases, each of these markets have continued to drift lower.  When hedge funds begin to close out these new longs, each of these markets will be under significant pressure.  Lower prices seem the most likely for the foreseeable future.

More Information

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The SpreadEdge Weekly Newsletter is published every weekend and provides a broad overview of the important seasonal, technical, and fundamental indicators within the Energy, Grains, Meats, Softs, Metals and Currency markets.  In addition, spread trade recommendations and follow-up on open trades is also provided.  For a free copy of the Weekly Newsletter, please send an email to info@SpreadEdgeCapital.com

Darren Carlat

SpreadEdge Capital, LLC

(214) 636-3133

Darren@SpreadEdgeCapital.com

www.SpreadEdgeCapital.com

Disclaimer

SpreadEdge Capital, LLC is registered as a Commodity Trading Advisor with the Commodity Futures Trading Commission and is an NFA member. Past performance is not indicative of future results. Futures trading is not suitable for all investors, The risk associated with futures trading is substantial. Only risk capital should be used for these investments because you can lose more than your original investment. This is not a solicitation.