Canada Markets

Oat Futures Breaking Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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March oats fell for a sixth time in seven sessions on Tuesday, finishing below support of the contract's 200-day moving average and the 50% retracement of the move from the September high. Selling came from both sides of the market, with the third study showing the March/May spread weakening, while the lower study shows a histogram of the net-long futures position held by investors in decline over the past two weeks. (DTN graphic by Nick Scalise)

Oat futures are under pressure despite the late Prairies harvest which will see some crop not harvested until spring, while the crop that was harvested faced challenges because of excessive moisture in many areas.

Bloomberg recently ran a story titled Granola Lovers Beware: Oat Costs Jump as Canada Output Drops, pointing to recent seven-year lows in oat prices reached in September, while followed by the largest harvest-season rally seen in a decade. In the case of the attached March contract, this rally saw price on the March chart move from $1.82 1/2 per bushel reached Sept. 30 to a high of $2.43/bu. reached Nov. 18.

Fundamentals are expected to be tight for oats. The most recent AAFC supply and demand tables point to the potential for Canada's ending stocks to fall by 35% to 600,000 metric tons in 2016/17, a four-year low, although this analysis is not reflecting the challenging harvest and the impact to quality. "You can't make a Cheerio out of barley", Randy Strychar of oatinformation.com in Vancouver told Bloomberg.

At the same time, oats are moving at a rapid pace. As of week 16, or the week ending Nov. 20, licensed exports totaled 425,800 metric tons, 25.3% higher than the same period in 2015. As well, the Canadian Grain Commission reports 73,311 mt of unlicensed exports in August alone, up 53.7% from the same month last year. Despite Saskatchewan's difficult harvest, the province recently reported that 94% of the crop was harvested as of Nov. 21, while also reporting that 72% of the province's crop will be graded in the top two grades. This compares to 70% in 2015 and 74% on average over the past 10 years.

The market seems to show little interest in the fundamentals, with Tuesday's 4 3/4-cent loss in the March future ending below the support of the contract's 200-day moving average at $2.12 1/4, as well as the 50% retracement of the September-through-November uptrend, found at $2.12 3/4 per bushel. Selling came from both the commercial and noncommercial side of the market, with the March/May spread weakening to minus 4 1/4 cents, the weakest spread seen since Oct. 7 and a sign of growing commercial bearishness (third study).

The histogram on the lower study of the attached chart also shows oats falling out of favor with investors, who have pared their net-long futures position from 1,008 contracts to 296 contracts over a two-week period ending the week of Nov. 22, a five-week low. With stochastic momentum indicators on the daily chart (second study) in oversold territory (second study), it will take renewed buying interest on the part of this group to stabilize this market or move back into an uptrend.

In the meantime, the move below the 50% retracement could result in a further move to the 61.8% retracement found at $2.05 1/2/bu., although a test of the 50-day moving average will first take place at $2.08 3/4/bu.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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