Short-term rallies in both the corn market and Chicago soft red winter wheat turned lower on October 7, while the December oat market kept moving higher. The oat market also closed higher on Thursday this week, gaining 2 3/4 cents to close at $2.34 1/2 cents while corn lost 3 1/2 cents and Chicago wheat retreated 5 3/4 cents.
The move higher may have come to a head today as oat prices near resistance, with the December oat contract ending 3 3/4 cents lower and posting a bearish outside day, trading both higher and significantly lower than Thursday's trading range while finishing the day lower. Another bearish sign was printed today which is referred to as a hanging man candlestick. This pattern is seen when the day's open, the high and the close are close together while there exists a long shadow. This is viewed as a potential bearish signal, but can only be confirmed with a lower open on Monday.
On the positive side, today's trade tested both the 20-day moving average (brown line at $2.26/bu) and the 50-day moving average (blue line at $2.29/bu) and closed above both levels. Both corn and wheat futures are trading well below major moving averages.
For almost two months, the December contract has traded between a high of $2.40/bu reached on September 16 and a low of $2.10/bu reached on October 5. Today's activity failed to test the $2.40 high, while additional resistance may be seen at the 38.2% retracement of the move from the June 30 high to the October 5 low which is found at $2.38/bu. Today's trade reached a daily (and weekly) high of $2.35 1/4/bu although a test of resistance was not in the cards with both U.S dollar strength and weakness in other grains spilling over into the oat market.
As seen on the attached chart, short-term momentum indicators (second study) are showing signs of a bearish cross-over while in over-bought territory above 80%.
The lower study shows the histogram of the net-position held by non-commercial traders or investors. As of October 6, this group moved from a net-short position to a bullish net-long position of 161 contracts, the first net-long reported in 16 weeks. While not shown, this week's data shows this group adding to this net-long of an additional 122 contracts to 283 contracts.
Last week's UDDA report increased their forecast for 2015 harvested acres and yield, with expected production of 90 million bushels to be 28.6% higher than last year and the highest since 2009/10. With demand also expected to increase substantially, ending stocks are expected to rise by 5 mb from last year to 59 mb, which is the highest level since 2010/11. Expected farm prices were revised lower from the September estimate, with a range of $2.00 to $2.50 expected, well below the average estimated price of $3.21/bu in 2014/15 and $3.75/bu in 2013/14. Expected imports of oats are pegged at 95 mb or close to 1.5 million metric tons, down 11.2% from last year but equal to the five-year average.
Given good supplies south of the border, Canadian growers may have to be patient to see the magic numbers that trigger oat sales, generally around $3 in Manitoba and lower in Saskatchewan. A quick look at online bids in Manitoba shows the one bid at $2.84/bu for 2 CW, with Canadian dollar weakness a boon to sellers.
Despite the USDA estimate for lower imports in 2015/16, week 10 data from the CGC shows exports through licensed facilities at 236,800 mt year-to-date, which is 11.9% above the same period last year. Something further to watch is pointed out in a blog on oatinformation.com, which suggests that producers exported 597,000 mt of oats outside of the licensed elevator system in 2014/15, close to a record. Where there's a will, there's a way as producers and merchants are finding ways to shorten the supply chain and move product direct to U.S. mills.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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