Canada Markets

Oats Futures End February Under Continued Pressure

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The continuous active monthly oats chart shows a third consecutive monthly tumble in February, with lows reaching the lowest level since May 2009. There remains bearish signals, with momentum indicators trending lower while in oversold territory (second study), weakening futures spreads (third study), while both noncommercial traders (fourth study) and commercial traders (fifth study) hold a net-short futures position. (DTN graphic)

Oats futures have done little to instill confidence among growers. The continuous active monthly chart shows old-crop prices falling 15 1/4 cents in December, 16 1/2 cents in January and 18 cents in February, to end the month at $1.82 3/4 per bushel; this is after reaching a low of $1.80/bu., which is the lowest level reached since May 2009. As seen on the attached chart, the continuous contract has been in a downtrend since reaching a high of $5.04 1/2/bu. in March 2014.

Stochastic momentum indicators on the monthly chart are oversold (below 20%), but have been in this position since October 2014 with momentum continuing to indicate downward pressure.

Further bearish signs appear in the lower three studies of the attached chart. The third study represents oats' futures spreads. The March/May spread widened 5 1/2 cents to minus 13 1/2 cents this month (black line) after weakening from a 3 1/4 cent inverse in the month of November, while the May/July spread (green line) ended at minus 8 3/4 cents. Both spreads indicate an increasingly bearish view of market fundamentals as determined by the actions of commercial traders.

The two lower studies are a histogram of the net-futures position held by both non-commercial traders (red bars) and commercial traders (blue bars). The concern here is that both sides of the market hold a bearish, net-short position. Noncommercial traders moved to a bearish net-short position of 176 contracts as of the most recent CFTC data released as of Feb. 23, the first monthly net-short position held in five months. The lower study indicates commercial traders continuing to hold a net-short position of 759 contracts, the fifth consecutive month of holding a net-short position.

Resistance on this chart is found at $2.23/bu., found at the downward-sloping trendline in place since March 2014. Nearby support is found at lows ranging from $1.78 1/4 to $1.79/bu., monthly lows reached in March and April of 2009.

New-crop December ended February at $2.05 1/2/bu. after reaching a $2.03 1/4 cent low. Daily, weekly and monthly momentum indicators remain in over-sold territory, which seems the norm across many grain and oilseed contracts. The likelihood of lower seeded acres in North America is having little impact on current new-crop trade.


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