The March USDA World Agricultural Supply and Demand Estimates report (WASDE) saw the forecast 2017/18 ending stocks for oats cut by one-third to 20 million bushels. This would be a sharp drop from the 50 mb ending stocks estimated for 2016/17, while the 20 mb would be the lowest ending stocks reported in tables going back as far as 1975/76 and likely a great deal further back.
This move would suggest an ending stocks/use ratio of a tight 11.8%. This would be down sharply from the 31.2% calculated for 2016/17 and the five-year average of 27%.
Despite this much tighter stocks estimate, USDA increased the range of producer bids by only a nickel in March from the previous month to $2.55 to $2.75/bu for 2017/18. Old-crop futures failed to respond to this estimate. The May future declined by 43 1/2 cents from the March 8 report to the lows reached last week, while the May/July futures spread weakened 6 1/4 cents over the course of the month of March, signaling a growing bearish sentiment held among commercial traders.
The past two weeks have seen noncommercial traders also sharply pare their bullish net-long futures position, with March 27 data showing a net-long position of 405 contracts, down 82.5% from a March high of 2,319 contracts. This is the smallest net-long position held in over one year.
The USDA may have clarified this data with a release of Thursday's March 1 oat stocks, which were reported at 55.1 million bushels, down 13% from March 1 2017. Disappearance in the most recent quarter was estimated down 7% from the year-ago pace of disappearance. Given the five-year average estimated disappearance for the March/April/May period, or the last quarter of the U.S. crop year, ending stocks could be projected at 42.4 million bushels (yellow bar on attached graphic). When one considers the 10-year average disappearance, ending stocks would project to 40.8 million bushels, which is noted by the red bar on the attached graphic.
While both projections result in a year over year decline in stocks, they would be more than double the volume seen in the March stocks estimates and help explain the tepid response seen in the markets since.
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