Canada Markets

Like corn, oat futures for December delivery reached a fresh contract high of $2.99/bushel and is another market that bears watching for several reasons.

The May Agriculture and Agri-Food Canada supply and demand tables point to 2018-19 Canadian oat stocks falling by an estimated 36% from the previous year to 500,000 metric tons, 41% below the five-year average and according to AAFC, "will likely be the historically low level." This could be challenged in that Statistics Canada reports the 2012-13 carryout at 446,000 mt but regardless, stocks are extremely tight.

Even with an increase in seeded acres of 7.9% and given average yields forecast by AAFC for 2019, tight stocks will contribute to the lowest forecast supplies seen in five years at 4.1 million metric tons. With the 2019-20 exports forecast left unchanged from the current crop year at 2.350 mmt, ending stocks are forecast unchanged at 500,000 mt.

At the same time, challenging conditions on the Prairies could throw current estimates into jeopardy.

Saskatchewan Agriculture's first look at crop conditions, as of June 3, pegged the oat crop condition good-to-excellent rating at 46%, down from the 73% reported in early June of 2018 and the three-year average of 85.7%.

While AAFC has held the line on Canada's exports for the crop year ahead, the USDA held to its forecast this week that points to a forecast increase in imports of 17.6% to 100 million bushels (1.5 mmt) in 2019-20, the highest imports in five years and the second highest volume imported in the past 11 years.

As of June 9, the USDA estimates the U.S. crop emergence at 87%, which is 10 points behind the five-year average. A closer look at this data shows that the six states of the nine monitored where emergence is the furthest behind account for 42% of expected seeded acreage, with emergence averaging 13.5 percentage points behind the five-year average for this week and as much as 24 points behind average.

Friday's new-crop December contract rallied to a high of $2.99/bu., although faced resistance and closed 1/4 cent higher at $2.92/bu., reaching a fresh contract high. The attached continuous December contract shows an uptrend in place since September 2016, while is now testing the 50% retracement of the move from the March 2011 weekly high to the September 2016 weekly low, calculated at $2.95/bu. A breach of this level could set the stage for a further move to $3.24 1/4 per bu.

The lower studies point to a bullish view held by both the noncommercial and commercial side of the trade. The blue bars of the histogram point to a bullish non-commercial net-long position of 3,409 contracts held as of June 4, the largest bullish position held in over six years, or since June 2013. This week's data shows this bullish net-long falling for the first time in four weeks to 3,179 contracts.

The red line on the lower-study points to the new-crop September/December futures spread, which closed at an inverse of 4 cents on June 14 (September closing above the December), signaling solid front-end demand this fall.

Oat buyers will take special note of forecasts and rain received across the Prairies during the next week, while keeping in mind that any amount of beneficial rains may fall far short of what is needed.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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