Canada Markets

December Oats End Below $3

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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December oats posted a modest loss on Friday, while gaining 6 1/4 cents over the week, its highest close yet and near contract highs. The $3 level remains a hurdle for the contract. The second study shows the Sept/Dec spread at a weak carry of one cent (brown line) and a bullish Dec/March inverse of one cent. Ahead of the latest CFTC data, the histogram on the lower study shows noncommercial traders holding close to the highest level seen since November 2014. (DTN graphic by Nick Scalise)

While commercial traders may be leaning heavily on spring wheat prices, as evidenced by weaker spreads this week, this is not the case with oat futures.

The long-term continuous active weekly chart shows the oat market forming a rounding bottom or saucer-shaped recovery, with nearby resistance at $2.98 1/4/bushel, the 38.2% retracement of the move from the 2014 weekly high of $5.04 1/4/bu. to the 2016 low of $1.71/bu. The psychological $3/bu. also remains a hurdle for the market.

Futures spreads (second study) reflect a bullish approach to trade by commercial traders. The Sept/Dec spread (brown line) strengthened 2 cents this week to end at minus 1 cent (December trading over the September), which is a weak carry and could be viewed as bullish as it is well-below the full cost of carry. The Dec/March spread (blue line) has weakened this week but remains as a bullish inverse, with the December trading above the March future contract.

The gold bars on the lower study shows the net-futures position held by noncommercial traders. This shows investors reducing this bullish net-long position slightly, as of July 10, while an updated chart will show this position further reduced, as of July 17, although the current net-long position continues to reflect a bullish overall position and is close to the largest held since November 2014.

Manitoba Agricultural Services Corporation or MASC has reported 461,804 acres of insured oat acres planted, while indicating that more that 90% of the province's crops are insured. This figure is over 78,000 acres or 14.5% below the most recent acreage estimate released by Statistics Canada. At the same time, crop conditions remain in decline in both Saskatchewan and Alberta, given the challenging weather conditions faced. This week's Alberta Crop Report points to a Good to Excellent rating for the province's crop at 67.2%, down from the highest rating of 77.8% reported one month ago and slightly below the five-year average. While Manitoba has missed the extreme heat and moisture seen further west on the Prairies, one prairie analyst has rated that province's overall crop as just "OK".

AAFC has forecast total exports for 2017/18 at 2.575 million metric tons, which would be the highest volume shipped since 2007/08. Current forecasts suggest that ending stocks will remain unchanged at 650,000 mt for 2017/18, which remains the lowest volume seen in five years. A further reduction in the crop's potential will leave Canada's oat balance sheet very tight.


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