The commodities markets are known for their high volatility, driven by a combination of market rumors and factual reports. While many day traders base their decisions on technical trends, savvy commodity traders also incorporate factual fundamental reports into their research to ensure that they are on the right side of the trade at all times.
In this article, we’ll take a look at the three most important reports that every commodity trader should know. We will show traders where to find each report, outline what the reports contain, and demonstrate the best ways to use these reports to maximize risk-adjusted returns [for more commodity news and analysis subscribe to our free newsletter].
1. Crop Production Reports
Crop production reports are issued by the U.S. Department of Agriculture (USDA) each month for a wide variety of commodities. These reports can be found on the USDA’s National Agricultural Statistics Service (NASS) website, while many other websites may aggregate the data for easier consumption.
To access the report, click on Publications, and then click on Crop Production under Most Requested Reports. Traders can then select the Reports by Email option in order to receive these reports automatically via email each week. These reports are generally released between the ninth and eleventh of each month at 8:30 a.m. EST.
What to Look for
The most important component of crop production reports is what’s known as the carryout estimate, or “ending stocks” estimate, which represents the amount of leftover supply after demand has been satisfied. By subtracting supply from demand, traders can estimate the carryout, with a low reading indicating higher prices and vice versa. Here are the basic steps to calculating this estimate:
- Open the desired crop production report.
- Multiply acres by yield and then add beginning stocks and imports to get supply.
- Add feed and residuals (food, seed and industrial) and export categories to get demand.
- Subtract total demand from total supply to get the carryout estimate.
Lower readings indicate higher prices and higher readings indicate lower prices.
2. Natural Gas Storage Report
Natural gas storage reports are issued by the Energy Information Administration (EIA) each week to provide information regarding natural gas production and usage. These reports can be found on the EIA’s website, and some websites may also aggregate the data for easier consumption.
To access the report, click on Natural Gas Storage Report in order to bring up the weekly data. The table in the first section of the report contains the most useful data, including the total natural gas storage figures, changes and comparisons. These reports are released every Thursday at 10:30 a.m. EST.
What to Look for
Like the crop production reports, traders watch natural gas storage figures because they provide insight into the difference between supply and demand. Excess demand leads to a greater need for storage and generally lower natural gas prices, while a reduction in storage usage indicates that demand has outstripped supply and forced companies to tap into reserves. Just a few quick and easy steps to identify these trends can help mitigate the effects of this commodity’s inherent volatility [see How to Trade Natural Gas Futures: UNG and Beyond]:
- Open the latest natural gas supply report from the EIA’s website.
- Compare the latest figures to analyst forecasts and prior figures.
- Record data over a set time frame to analyze ongoing trends.
Increases are generally bearish and decreases and generally bullish, while trends over time can indicate where long-term prices are headed.
3. Commitments of Traders Report
Commitments of Traders (COT) reports are issued by the Commodity Futures Trading Commission (CFTC) each week outlining commodity positions held by major traders. These reports can be found on the CFTC’s website, while there may also be some websites that aggregate the data for easier consumption.
To access the report, scroll down to the Current Legacy Reports section and select the Long Form for the desired commodities exchange. This will display the data in a text format for the various commodities. These reports are released every Friday at 3:30 p.m. EST.
What to Look for
The COT report provides information about commercial hedgers, non-commercial institutional traders and non-reporting entities. Out of these three groups, non-commercial institutional traders are the most important to watch, since they are primarily interested in profiting from pricing trends instead of offsetting random commercial harvests. Here are a few tips on how to access and analyze this data [see also Top 100 Futures Trading Blogs]:
- Open the COT report for the desired commodity exchange/commodity.
- Record non-commercial long and short position sizes over desired time frame.
- Overlay a commodity price chart with the position size data over time.
- Watch for a divergence between the price and position sizes, with the potential price movements in the direction of the position changes and opposite of the price.
Using the Reports
Commodity traders should use these reports in conjunction with additional fundamental and technical analysis in order to maximize their profits. For instance, the COT reports can be used in conjunction with either the crop or natural gas report in order to provide further clues into where prices may be headed over the coming months.
Technical analysis can also be very useful in defining specific entry and exit points for an otherwise fundamentally-based trade. For instance, non-commercial traders may be bullish on corn, but prices may be held back by a 200-day moving average. In this case, traders may be best off waiting for a break of this key level before taking a position.
The Bottom Line
Commodities markets may be known for their high volatility driven by market-moving rumors, but savvy traders can use these three reports to gain an edge. While these reports don’t guarantee sure-fire profits, they do provide commodity traders with very useful data that can be used in conjunction with other techniques to improve risk-adjusted returns.
Disclosure: No positions at time of writing.