Todd's Take

Here we are, only three weeks into the new year, and grains have wasted no time trading higher. Corn's 5% gain has already outperformed its 2016 effort and soybeans' 7% increase is half of what soybean prices gained all last year.

USDA helped matters Jan. 12 by releasing slightly lower crop estimates for corn and soybeans than most expected, but the bigger boost came after last weekend's rains drenched fields in north-central Argentina and likely trimmed back production hopes.

Among row crops, Argentina's news gave soybean meal the biggest boost of 11% as the country is known for being the world's largest exporter of both soybean meal and bean oil. Add that to meal's gain of 18% in 2016 and we now see March soybean meal at $348.70, as of Jan. 20, the only grain-related U.S. futures contract, is back near its 10-year average.

As good as the start has been for soybean meal, you may be as surprised as I was to find out that the top performing U.S. grain so far in 2017 already has a 15% gain. You would be forgiven for not noticing oats, the forgotten cereal grain of an older era, closed at $2.62 3/4 Friday -- its highest close in more than a year.

Today's oat market is not the same one your grandpa would recall; 1962 was the last year that the U.S. produced more than a billion bushels of oats. Since then, it's been all downhill and 2016 production only totaled 65 million bushels with almost none of it exported.

In our Jan. 20 closing market video, I teased my DTN colleague Bryce Anderson with the old saying, "oats knows where corn goes," but we all know that bit of rural folklore is on shaky ground. Even so, I couldn't help but wonder if the old bag of feed is trying to tell us something about the year ahead. After all, bullish breakouts in oats led bullish moves in corn in 1986, 1995 and 2005. Could there be one more race left in the old nag?

The other important thing about oats is that ever since the calendar flipped to January, futures spreads have shown bullish inverses, meaning that commercials are so eager to buy oats that they are bidding higher prices to obtain front-month contracts.

Given that no one knows demand better than the commercial firms that actually deal in the grain, these bullish inverses are valuable bullish clues. In addition to oats, we are currently seeing bullish inverses in futures spreads for new-crop soybeans and soy products, Minneapolis wheat, and palm oil. If we could get corn added to the list, I would be more willing to believe the old "oats knows" folklore.

Of course, we can't know yet how the rest of 2017 will go -- the market gives and the market takes away. But as I pointed out in another article earlier this month, "Corn's Next Five Months" (see http://bit.ly/… ), early success tilts the odds in favor of having higher prices the rest of the year. For producers, there is still 49 more weeks of uncertainty ahead in 2017, but hey, after the bearish weight of last fall's record harvests, this higher start isn't so bad.

Todd Hultman can be reached at todd.hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

(ES/BAS)

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