Canada Markets

After reaching an August 31 high of $4.21 1/4 per bushel, December oats have drifted lower and have traded in range-bound fashion since mid-December of 2012. The lower end of the range was bound by the low of $3.37 1/2/bu. while the upper boundary of the range was roughly $3.70/bu.

Since early April, oats have been in a short-term uptrend, as marked by the blue trend line in the upper study of the attached chart. This trend line was tested on both May 21 and 22, when the contract made a double-bottom with a low of $3.46/bu. Since then, the trend has moved sharply higher.

The December contract broke out of its trading range convincingly in today's trade on the highest volume trade seen over the course of the contract. Besides breaking through the $3.70 barrier, $3.69 1/2/bu. also represents the 38.2% retracement of the move from the $4.21 1/4 high to the $3.37 1/2/bu. low. Today's move also saw prices advance above the 50% retracement of the downtrend in question, which is at $3.79 1/4/bu., although prices failed to hold above this resistance level.

Oat spreads would indicate that commercial traders are becoming increasingly bullish. The Sept/Dec spread gained 9 1/2 cents over the course of the trading week, now trading at a 16 1/4 cent inverse (September trading over the December). Nearby resistance for this spread is at 17 1/4 cents, reached on the weeks of December 3 and March 25 (not shown). The Dec/Mar spread is also showing strength, gaining 2 cents this week to end at a 1 3/4-cent carry (March trading above the December). Nearby resistance may be found at a plus 1 1/4-cent spread, reached the week of April 1.

It is very likely that the oat market is reacting to the same concerns as seen in the new-crop corn and soybean trade, with forecasts indicating that more rain in the Midwest and Northern Plains in the next seven to 10 days that will further delay planting and perhaps act to stress the growing crop.

As of the June 2 USDA Crop Progress report, the nine-State analysis suggested 94% of the U.S. crop had been planted, just slightly behind the five-year average of 98%. As is seen with the spring wheat crop, North Dakota is the furthest behind, at 72% complete as compared to the State's five-year average at 90%. Reports suggest that North Dakota is seeing its slowest planting pace in the past 32 years.

With 260,000 acres intended for oats in North Dakota, as indicated in the USDA Prospective Plantings report, North Dakota would have the second largest acreage of oats in the U.S. The June 2 progress report would suggest that approximately 73,000 acres had not been seeded in the state.

The Crop condition for oats in the U.S. as of June 2 was rated as 56% Good to Excellent, 30% Fair and 14% Poor to Very Poor. This compares to last year's rating at 72% Good to Excellent, 22% Fair and 6% Poor to Very Poor.

Watch for oats to continue to get caught up in the new crop volatility as seen in the row crops. Excessive rainfall in the Midwest and Northern Plains could negatively affect the crop's condition, which may be noted in Monday's Crop Progress report. A further strengthening of the spreads and a test of resistance on the spread chart will signal growing commercial bullishness. Should the December contract hold above the $3.69 1/2/bu. level, a further test of resistance at $3.79 1/4 may be around the corner. Next week's WASDE report will also be one to watch as the U.S. deals with the impact of the adverse weather seen this spring in their supply and demand tables.

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

(AG)

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