Canada Markets

Oat Futures Nearing Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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May oat futures rallied along with other commodities, also driven by noncommercial traders. Today's move broke above resistance of the 33% retracement of the move from the December high to the March low, with the next level of resistance in the $1.99 to $2.00/bushel range.

Oat futures rallied along with the other grains on Tuesday, driven by the weakening United States dollar index as well as spill-over from noncommercial buying seen in other grains. The old-crop May contract gained 5 cents to end at $1.95 3/4/bushel, while moving above resistance.

North American stocks remain plentiful and may curb upside potential for this crop. The most recent USDA report shows 2015/16 ending stocks at 65 million bushels (one million metric tons), which is 20% above the previous year and 37% above the five-year average. This represents a stocks-over-use ratio of 37.7%, the highest level seen since 2009/10.

Agriculture and Agri-Food Canada's April report shows Canada's 2015/16 ending oat stocks estimated at 850,000 metric tons, 28% higher than the previous year which is 14.3% above the five-year average. Combined, North American ending stocks are estimated at a six-year high.

The USDA's March 31 Prospective Plantings report showed U.S. farmers plan to reduce acres by 11% from 2015 levels to 2.751 million acres, similar to the acreage planted in 2014 while holding above historic lows reached in 2011 at 2.35 million acres. Monday's weekly Crop Progress report from the U.S. shows the crop is 56% planted, ahead of the 54% planted this time last year as well as the 50% average planting pace reported for the past five years.

Ahead of Thursday's Statistics Canada Principal field crop areas report, a Commodity News Service Poll reported by The Western Producer indicates that acres seeded to oats will fall in 2016, with a range of 2.8 to 3.20 million acres expected, down from the 3.337 million acres estimated for 2015/16.

April 13 trade saw the old-crop May contract close above the contract's 50-day moving average for the first time since mid-December, while today's move pushed above the resistance of the 33% retracement of the move from the Dec. 4 high to the March 2 low, after testing support near the 50-day moving average.

The old-crop contract continues to face resistive nearby, with the 38.2% retracement of the same downtrend found at $1.99/bu., along with a March weekly high of $1.99 1/2/bu. as well as psychological resistance at $2/bu.

The second study shows stochastic momentum indicators on the daily chart entering into over-bought territory above 80% on the chart, similar to what is seen in both corn and soybean charts, although unlike the other grains, these indicators have not spent much time in over-bought territory over the life of this contract with prices seeming to quickly correct in the opposite direction.

The third study shows the May-over-July spread weakening from a spread or carry of 7 1/2 cents on April 8 to minus 8 3/4 cents today, as commercial selling limits upside potential, a bearish signal. The lower study shows a histogram showing the net-futures position held by investors. As of last week's April 12 data, investors held a net-short futures position of 636 contracts. This group of traders is showing a waning appetite for being short in the current market, resulting in the moves seen across the grains in Tuesday's trade. The extent to this activity may be the key to determining the upside potential for this market.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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