Investors manage inflation through net length, enabling producer hedges
April 16, 2024
Key Observations:
The chart below depicts long (navy blue) and short (light blue) positioning for five categories of traders in seven commodity futures markets, inclusive of options, as of Apr 9.
The trader categories are: Producers, Merchants, Processors, and Users (PMPU), Swap Dealers (SD), Managed Money (MM), Other Reportables (OR), and Non-Reportables (NR). PMPU is exclusively a commercial category, though commercial positions also appear in SD and NR.
The seven markets are: NYM WTI crude oil (CL), NYM RBOB gasoline (XB), NYM ultra low sulfur diesel (HO), NYM natural gas (NG), CMX copper (HG), CMX gold (GC), and ICE-NYB world raw sugar (SB).
The largest risk position is (1) Swap Dealers' short in gold: $87.07 Bn. The second largest position is (2) Managed Money's long in WTI crude oil: $71.40 Bn. Rounding out the top five: (3) Other Reportables' long in gold ($70.15 Bn), (4) Managed Money's long in gold ($67.39 Bn), and (5) Swap Dealers' short in WTI ($58.74 Bn).
Altogether these five tranches account for 30% of all risk presently taken in these seven futures and options markets. Positions expressly designated as commercial hedges by producers, merchants, processors, and users account for another 20% of gross risk; however, this figure excludes commercial over the counter (OCT) hedges. They are bundled into the Swap Dealer data (e.g., Box #1 in the chart).
Swap Dealers hold 22% of all risk across these markets: 7.8%-pts of that exposure is on the long side and 14.2%-pts on the short side. This nearly 2:1 ratio toward the short side emphasizes the producer hedging channel through Swap Dealers. Managed Money holds 28% of gross risk: 17.5%-pts long and 10.8%-pts short.
Source: CFTC, Blacklight Research.
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