Canada Markets

Oat Futures Break Long-Term Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Last week's move on the continuous active oat chart resulted in a 23 1/4-cent loss, the largest weekly loss in 12 weeks while breaking trend line support drawn from a Sept. 2016 low. The middle study shows noncommercial traders paring their bullish net-long position slowly, while the lower study shows the May/July spread moving to a bearish carry of 25 cents. (DTN ProphetX chart)

The continuous active oat chart shows last week's move in the May oat contract broke a long-term trend line last week with a 25 1/4-cent move lower in the May contract, with seven losses realized in eight sessions. Oat futures are clearly caught in the global uneasiness tied to the coronavirus, the effects on global supply chains and demand and concerns of slowing global growth.

This move was extended in Monday's trade, with a 7 1/4-cent loss in the May contract to close at $2.65 1/2 per bushel, the lowest price seen in active trade for the contract.

The first study shows noncommercial traders paring their bullish net-long position for the third time in four weeks, while at 2,406 contracts, could be viewed as a bearish factor for this market, should this group grow increasingly bearish.

The line on the lower study represents the May/July futures spread, which has weakened from a bullish inverse of 13 1/4 cents reached on Nov. 25 (May trading above the July), while moving into a bearish carry in Monday's trade. This spread weakened 3 1/4 cents to minus 2 cents on Monday (July trading over the May), the weakest seen since the week of Aug. 19.

Monday's move also resulted in a breach of the 38.2% retracement of the move from the Sept. 2016 low to the November 2019 high on the continuous active chart at $2.68 1/2 per bushel, which could result in a further move to the 50% retracement at $2.50/mt. At the same time, a number of lows reached in Feb/March 2019 as well as July/August on the continuous weekly chart ranging from $2.60 to $2.65 1/4 per bushel may act as support given a further move lower.

When fundamentals are considered, the USDA's Long Term Projections released in February include a 100,000-acre increase in seeded acres and 200,000-acre increase in harvested acres in 2020. A year-over-year increase in forecast yield of 2.1 bu./acre is expected to result in the largest crop in five years. Ending stocks of 43 million bushels would be the largest in four years, representing a bearish 27.6% of annual use.

AAFC's February estimates include a slight uptick in Canada's seeded acres, while yield is forecast slightly lower. Forecast production at 4.380 million metric tons would be the largest in 12 years. The current forecast points to a 63.6% increase in ending stocks from 2019-20 to 2020-21 to 900,000 metric tons, which would be the largest in five years and the largest percentage increase seen since 2007-08. Given current forecasts, Canadian stocks would be 32.5% above the previous five-year average and represent 22.3% of annual disappearance.

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

Follow him on Twitter @CliffJamieson

(ES)

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