Canada Markets

Oat prices stalled in yesterday's trade after testing the 50% retracement of the downtrend from the September high of $4.10 1/2/bu. to the January low of $3.28 1/2/bu., which was at $3.69 1/2/bu. Prices failed to breach this level on Wednesday while the daily close was below the mid-point of the 11 3/4 cent daily trading range. Thursday's trade has resulted in a further loss of 2 cents. The daily stochastic indicators are in over-bought territory and are rolling over, as indicated on the bottom study of the attached chart. If the oat market is truly the leading indicator that has been claimed by many, it's not painting a pretty picture.

Feed oats delivered central Saskatchewan are below their November highs of $210, or $3.24/bu., and are currently in the $190/mt range, or $2.93/bu. Given the most recent forecasts from Ag Canada, Canadian oat carryout stocks are expected to tighten 26% to 600,000 mt this crop year, which is just 12.5% below the 10-year average carry-out.

Like the late Rodney Dangerfield, oats just can't get respect. In their latest release, Agriculture and Agri-Food Canada's Outlook for Principal Field Crops for January has forecast yet another cut to oat acres to 2.595 million acres in the 2013/14 crop year. This is a drop of 9% from last year and close to a 38% drop from the 10-year average. Looking back 40 years to 1963, Canadian farmers seeded 9.34 million acres of oats. Ending stocks for 2013/14 are suggested to fall a further 33% to 400,000 mt, although prices are expected to continue under pressure, with the largest factor weighing on the market being the expansion of U.S. corn acres and forecast recovery from the current tight squeeze on feed grains due to last summer's Midwest drought.

Year-to-date Canadian exports for oats as of week 25 are a disappointing 620,100 mt, which is 16.3% below last year's pace, with the crop year now 48% complete. It would appear that we may not be on track to reach Ag Canada's projection of 2.325 mmt, which may continue to weigh on oat prices. The U.S. oat production was up 19% in 2012/13 from the previous year, which is capping Canadian oat export potential to the U.S.

Oat returns are simply failing to compete with the many cropping alternatives that lie before producers. Ag Canada is forecasting an average price level for 2013/14 that is 16% below price levels forecast for this year. Impacts resulting from weather developments in the U.S. Midwest may act to alter the direction of this market as we move forward.

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

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