There's an old saying that "oats know where corn goes," and in this case, oats were indeed the first futures market to reach recent daily lows and attempt to rally higher.
For example, the December oat contract reached its recent daily low July 27, while soft red winter wheat, soybeans and corn all reached their daily lows Aug. 3. The difference between these markets is that while oats prices have since consolidated and have struggled to trade above the July 27 weekly high, the other grains have moved into a short-term uptrend.
As indicated on the attached chart, the December oat contract reached a daily high of $2.53 per bushel July 31, just slightly above technical resistance at $2.52 1/2/bu which is the 38.2% Fibonacci retracement of the move from the June 30 high to the July 27 low. Price failed to hold gains above this resistance and have since traded sideways in a 12-cent range between a high of $2.53/bu and a low of $2.41/bu.
Monday's trade saw the December oat contract finish 3 1/2 cents higher at $2.47 3/4/bu, very close to the mid-point of the 8-cent range traded this session, as buyers and sellers agree to meet in the middle in today's trade. While the Dec/Mar spread indicates commercial buying interest this session (lower study) with the spread closing at minus 9 1/2 cents (March over the December), the forward curve or series of futures closes across contracts would indicate a bearish upward sloping line through to May 2016 and suggest a bearish fundamental outlook for the crop.
Non-commercial traders are indicating a growing bearishness, with weekly CFTC data as of Aug. 4 indicating a net-short position of 1,474 contracts held, the fourth consecutive weekly increase in the net-short position and the seventh consecutive week that a bearish net-short position has been held.
Monday's Crop Progress report shows the U.S. oat harvest at 62% complete, equal to the five-year average, while the nine-state crop condition is pegged at 68% Good to Excellent, up from 63% this time last year. U.S. production estimates have pegged production at 83.64 million bushels this crop year, a volume which is 20% above last year and 27.6% above the three-year average. Note that this estimate will be updated in Wednesday's USDA report. Saskatchewan's crop has been rated at 73% Good to Excellent as of July 27, above last year's 71% and just below the five-year average of 76%. The oat crop is the highest rated crop in the province at present.
Most recent price reports from Manitoba Agriculture show prices in the $2.80 to $2.90/bu range for No. 2 CW oats, while new-crop may be binned in hopes of price recovery. With oat futures struggling with resistance and moving sideways, a break above resistance at $2.52 1/2 and a move above $2.62/bu (the four-week high) on the weekly chart may be needed to signal upside potential in this market.
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Cliff Jamieson can be reached at email@example.com
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