The COT Index and Corn by Scott Barrie
Here's a study on using the Commitments of Traders index as an indicator for trading the corn market.
The clearing houses for futures exchanges list the current number of outstanding contracts as the open interest figures. Unlike securities, where the paper is referred to as shares and which are only issued by the
corporations, futures contracts can be created and dissolved by the parties actually trading the market.
Whenever a new buyer goes long a contract and the other side of the trade is a new seller establishing a short position, one new contract is created. Besides the clearing houses, the Commodities Futures Trading
Commission (CFTC), a government agency, also tracks the positions held by reporting traders and releases a monthly report called the Commitments of Traders (COT) report.
The COT report is a breakdown of open interest into six major classifications: commercial longs, commercial
shorts, noncommercial longs, noncommercial shorts, small trader longs and small trader shorts. The CFTC
classifies an account as commercial if it uses futures for hedging purposes. Noncommercials are those
individuals or entities who have positions that are equal to or exceed the reporting level for a particular
commodity market. The remainder of the contracts outstanding that are not spread positions fall into the small trader category.
Conventional wisdom has it that the commercial hedgers and noncommercials (or large speculators) are consistently right, while the small speculators are consistently wrong. But in commodity trading, conventional wisdom is a very dangerous thing to rely on. According to my own analysis, the speculative accuracy of the various groups depends greatly on the month in which the report was issued, or to put it more precisely, the sentiment of the various groups must be viewed within a seasonal context. The corn contract, traded on the Chicago Board of Trade (CBOT), will be used to demonstrate my findings.