Canada Markets

The writing may be on the wall for the oat market with reports that the E.U. has licensed over 200,000 mt of supplies for export to meet demand by U.S. millers. While the May contract has fallen 20% from the high of $5.04 1/2 reached in early March, it has found support over the last four days at the 50% retracement of the uptrend which started at the $3/bu. low in October to the $5.04 1/2 high. Today's close fell right on this level of support at $4.02/bu.

Investors are spooked and have been sellers of late, with the noncommercial net-long position falling to 1,108 contracts as of March 25, down 912 contracts from the 2,020 held the previous week, creating the downward momentum as indicated in the middle study of stochastic indicators. Commercial traders are cautious, however, with the May/July spread falling from a weekly closing high of 70 1/4 cents early this month to this week's 43 1/2 cents. This continues to reflect a bullish situation, with this week's spread narrowing 1 3/4 cents to end at the 43 1/2 cent inverse.

The flow of U.S. destination grain from Canada continues to be described as a "trickle." Railways are open and honest about the fact that cycle times are longer with U.S. traffic and they do not get the cars returned quick enough. Farm groups on the Prairies express concerns that the railways can pick and choose which regions they pull cars from, what commodities move and which end-use markets they focus on as railways attempt to recover from the current backlog of 70,000 cars.

Week 33 data from the Canadian Grain Commission indicates that a total of 23,600 mt of oats were exported through licensed facilities, while the year-to-date volume is 635,200 metric tonnes. This is approximately 100,000 mt behind year-ago movement, when 736,500 mt had been shipped.

Oat traders may be watching Monday's Prospective Plantings report in the U.S. for signs of recovery in planted acres in 2014. While the oat acreage has been in a long-term decline, it has increased each of the past two years after reaching an all-time low of 2.5 million acres in 2011/12 to rebound back to the 3.01 million acre level in 2013/14. Markets may find further support if there are indications of a further tightening of acres.

Should the 50% retracement level be breached at $4.02/bu., watch for the potential for prices to continue to slide to the 61.8% retracement of $3.78/bu.

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

(ES)

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