The alarm bells may be going off in the oat market, with CME futures for December delivery reaching a contract high, along with the March and May contracts. December oats reached their fifth contract high since mid-October on Wednesday, closing 7 1/4 cents higher at $3.13 3/4/bushel.
Oat fundamentals provide ample reason for concern. Earlier this month, the USDA slightly reduced its estimate for harvested acres in the U.S. after resurveying producers in the northern states. As a result, estimated U.S. production was revised from 54.2 million bushels to 53.1 mb, resulting in ending stocks of 36 mb (555,000 metric tons) which would be the lowest stocks in six years. Included in the USDA's balance sheet is 95 mb of imports (1.465 million metric tons), up 9.7% from 2018-19 and would represent the largest imports in five years.
Agriculture and Agri-Food Canada released its November Canada: Outlook for Principal Field Crops report on Nov. 19, with very few changes in estimates since October. The December report, incorporating Dec. 6 Statistics Canada production estimates, could result in wild swings in estimates as producer surveys shed light on the challenges faced in the 2019 harvest.
The October report estimates the 2019-20 Canadian oat carryout unchanged from October at 500,000 mt, up slightly from the estimated 412,000 mt carried out of the 2018-19 crop year which is the smallest estimated stocks since the 2001-02 crop year. The 2018-19 carryout accounts for 10.8% of total disappearance (exports plus domestic use), the tightest seen in Statistics Canada data going back to 1996-97.
At the same time, AAFC noted that the 2019 harvest is close to 90% complete, jeopardizing production of roughly 400,000 mt based on current Statistics Canada estimates. This is roughly in line with the most recent crop reports, which indicate the Manitoba crop at 99% harvested, Saskatchewan at 90% harvested and Alberta at 85.1% harvested. Provincial harvested acre estimates along with yield estimates would indicate that unharvested acres could account for roughly 320,000 mt of production.
The Canadian Grain Commission's Grain Statistics Weekly for week 14 or the week-ending Nov. 10, shows robust activity since the start of the crop year. Producer deliveries into the licensed handling system are pegged at 836,500 mt, up 20.7% from the same period last crop year and is 31% higher than the five-year average. Exports are reported at 530,800, down 1.2% from the same period last crop year but 27.6% higher than the five-year average for this period. Commercial stocks, at 212,200 mt, are 23.5% higher than the same period in 2018-19 and 27.6% higher than the five-year average. There has been early interest in oats that is well supported by the weekly data.
The attached chart shows trade on the December daily chart largely held within an upward-sloping channel since September. Resistance from this channel is found at roughly $3.25/bu., while the continuous active chart (not shown) also points to a weekly high of $3.25/bu. reached in May as the next upside target. The continuous active weekly chart points to $3.37 3/4/bu. as the 50% retracement of the move from the March 2014 high to the September 2016 low as the next test given a further move higher.
The forward curve for oats, a line connecting the consecutive contract closes over time, is downward sloping, which ranges from the December close of $3.13 3/4 to the September 2020 close of $2.84/bu., points to a bullish situation as determined by the actions of commercial traders. The lower study points to the inverted futures spreads, including the Dec/March, the March/May and May/July, which all strengthened this session.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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