Canada Markets

December Oat Futures Push Higher

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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December oats broke through resistance to close near the top of today's 10 1/2-cent trading range. The second study shows that the December contract is over-bought although continues to indicate upward momentum, while the lower study indicates a bullish market structure with the Dec/Mar, the Mar/May and the May/July futures spreads all trading in a bullish inverse. (DTN graphic by Nick Scalise)

The oat market is perhaps showing its true colors today, with a break above resistance and a strong technical close near the upper end of its 10 1/2-cent trading range in today's session, ending at $3.54 1/2 per bushel, up 10 1/2 cents/bu.

Resistance broken this session includes:

-- the $3.46/bu. double top reached on Nov. 6 and 7

-- the October high of $3.48 1/4/bu.

-- the 50% retracement of the move from the June high to the September low at $3.47 1/2/bu., and

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-- the downward-sloping trendline drawn from the August high which makes up the upper-boundary of a triangle chart pattern.

The forward curve for oats (not shown) provides a snapshot of a bullish market structure, with the market inverted through the crop year (i.e. December trades over the March, the March trades over the May, and so on) which is reflected by a downward-sloping line when the consecutive futures closes are joined by a line to form the forward curve, which plots price on the vertical axis with time on the horizontal x axis.

The second study on the attached chart indicates that oat prices are over-bought, or above 80% on the chart of stochastic momentum indicators, while there is no sign of these indicators rolling over at present, indicating continued upward momentum.

The third study indicates an upward trend in both the Dec/March spread, shown by the upper black line, which gained 6 1/4 cents in today's session to close at 29 cents, after breaking resistance at 26 3/4 cents reached on Nov. 6. The positive spreads seen on the March/May and the May/July also reflect the bullish nature of the oat market, driven by activity in the commercial sector.

Non-commercial traders also indicate bullish activity, with the most recent CFTC Commitment of Traders report indicating a net-long position of 1,866 contracts as of Nov. 12. While this net-long position has been reduced over the past two weeks, with the average net-long position of 2,419 contracts over the past three weeks, it is very likely that this group added length to their long position in today's trading activity.

Technical analysis theory would suggest that today's breakout from the triangle pattern can be expected to continue a move higher to a level equal to the vertical height at the base of the triangle. The vertical distance at the base from the $3.56/bu. high on Aug. 27 to the lower upward-sloping trendline is 62 1/2 cents. When this amount is added to the point on the trendline where today's breakout occurred, at $3.45/bu., the target then becomes $4.07 1/2/bu.

Resistance that must be broken in order that this level is achieved is first found in the $3.56 to $3.58/bu. range, where $3.56/bu. represents the August high while $3.58/bu. represents the 61.8% retracement of the move from the June high to the September low. The $3.92/bu. June high will also act as a potential barrier to a further rally higher.

One has to question whether ongoing logistical issues from Canada are continuing to support this market? The CGC reports 230,600 mt of oats exported in the first three months of this crop year, from Aug. 1 to the end of October. During the same period last year, 384,400 mt were exported, in 2011 413,900 mt were exported while in 2010 the exported volume was 396,000 mt. This bears watching.

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

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