Canada Markets

December Oat Futures Show Troubling Signs

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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December oats reached a fresh contract low on Monday. The first study shows the stochastic momentum indicators rolling over to show a downward trend in prices, with room to move lower yet prior to reaching oversold territory. The second study shows the Nov/Jan spread weakening in Monday's trade to break support and reach the weakest spread seen over the life of the contract of minus 14 cents. The lower study shows the latest CFTC data increasing their net-short position for the fourth consecutive week. (DTN graphic by Nick Scalise)

Perhaps the oats market had little chance in Monday's session, with December HRS, HRW, SRW and corn futures all reaching fresh contract lows. December oats finished 6 1/4 cents lower at $1.79 per bushel, after reaching a contract low of $1.76 1/4/bu. Today's move is one step closer to the 2016 low of $1.71 3/4/bu. reached March 2 as seen on the continuous active chart (not shown), while a move below this level could result in a father move lower to a test of the 2009 low of $1.62/bu.

While the first study shows the stochastic momentum indicators on the daily chart rolling over, this is perhaps not the most bearish of moves given that the crossover did not take place in over-bought territory or above 80 on the chart. The move lower is supported by a growing bearish sentiment held by commercial traders, as indicated on the second study with the black line or December/March spread ending at minus 14 cents (March trading over the December), which represents a breach of chart support in Monday's trade and the weakest spread seen over the life of the contract.

The green bars on the lower study represent a histogram of the weekly CFTC noncommercial traders' net-futures position. As of the most recent Aug. 23 data, noncommercial traders or investors were net-short 1,087 contracts, the fourth consecutive weekly increase and the largest bearish position held by this group since Sept. 8 2015. Over the month of August 2015, investors held a net-short position ranging from 1,474 to 1,508 contracts.

Today's weekly USDA crop report estimates the U.S. oat harvest winding down and earlier than normal, with an estimated 95% of the crop harvested as of Aug. 28, up from the five-year average of 89%. Most recent supply and demand estimates from the USDA show total oat supplies to be unchanged this crop year despite a smaller seeded acreage, with slightly higher beginning stocks combined with a 9 billion bushel increase in expected imports to 95 mb (1.465 million metric tons) expected to lead to a year-over-year increase in ending stocks to 59 mb (910,000 mt) or the highest level since 2010/11.

Most recent estimates on the Prairies shows Saskatchewan's oat harvest at 4% complete, as of Aug. 22, and only 1.2% complete in Alberta, as of Aug. 23. Statistics Canada's production estimates for oats could be viewed as supportive for oat markets, with production estimated at roughly 3.1 mmt, the lower-end of expectations, while current AAFC estimates indicate that oat ending stocks will fall this year to 575,000 mt, a three-year low but approaching some of the tightest stocks ever held.

Oat traders will be paying close attention to the Sept. 6 Statistics Canada July 31 stocks report as well as harvest quality on the Canadian Prairies. One positive signal did occur on Monday, with the further out March/May spread seen on the second study (gold line) narrowing to minus 3 3/4 cents, a sign of a less-bearish outlook longer term which may eventually have a stabilizing impact on nearby trade.

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

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