December oats finished higher for the second straight day Friday, with a gain of 3 cents over the course of the week and the first weekly increase in four weeks. Thursday's low reached a contract low on the December contract of $2.15/bu.
The third study on the attached chart indicates a rapid narrowing of futures spreads, with the Sept/Dec spread narrowing 17 1/4 cents over the week to a bullish 6 cent inverse (September over the December, as indicated by the black line), while the Dec/Mar spread also narrowed 8 1/4 cents this week to an inverse of 1/2 cents, a sign of growing commercial bullishness.
This move comes despite August USDA data which indicates the U.S. oat acreage at a five-year high, favorable yields and production which is expected to reach a six-year high of 85.46 million bushels or 1.3 million metric tons.
Next week's Statistics Canada stocks report will be of interest to oat market watchers. Given March 31 stocks reported by Statistics Canada and the five-year average disappearance or demand for oats in the April through July period, ending stocks could fall by 40.6% to 614,000 metric tons. This same calculation would result in a 57.3% drop to 442,000 mt given March 31 stocks and the 2014 April-through-July disappearance. This would result in the lowest level of stocks since 2001/2002 when year-end inventories fell to 363,000 mt. Agriculture and Agri-Food Canada's July estimate suggested stocks to fall to 575,000 mt.
Basis levels in Minneapolis are also stronger than normal for this time of year. Thursday's U.S. No 2 or better oats were reported by the USDA to range from $2.32 to $2.72/bu, with the higher end of this range at $.50/bu over the December future. This is equal to the basis level reported for the same period last year, although is more than double the $.235 five-year average basis for this point in time.
The fifth and sixth studies on the attached chart shows commercial traders and non-commercial traders at odds with each other with respect to their respective futures positions held as indicated in CFTC data. The fifth study, or green bars, indicates the non-commercial net futures position, with the most recent data as of Aug. 26 indicating a net-short position of 1,508 contracts. This is the largest, or most bearish position held by this group since June 2010.
The sixth study indicates the net-long futures position (purple bars) held by commercial traders, or those tied to the physical commodity, with the most recent data showing a net-long position of 1,528 contracts as of August 26. This is slightly below the 1,605 contracts held in the week ending Aug. 5 but remains among the largest net-long positions held since March 2009.
The direction of this market moving forward will largely depend on how things are resolved between these two groups of traders. The move higher could be sustained should investors give in and liquidate their current net-short position. The second study indicates the weekly chart is oversold, which can also lead to a sudden change in market direction. Given a further move to the upside, the first target is $2.41/bu which represents the Aug. 17 weekly high, as well as the 38.2% retracement of the move from the June 29 weekly high to the August low. Beyond that level, the next target would be $2.49 1/4, the 50% retracement of the same downtrend while the 50-day moving average lies at $2.51/bu.
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