New-crop oat futures have rallied along with spring wheat, both reaching fresh highs on their respective charts in Friday's trade. Since the April 11 low of $5.44 per bushel on the December MGEX spring wheat chart, the new-crop December contract has gained 22%, or $1.20 1/4/bu, to Friday's close of $6.64 1/4/bu. At the same time, December oats have gained 46 1/4 cents, or 21.6%, between the December contract's $2.14 1/4/bu low and Friday's $2.60 1/2/bu close.
The June USDA WASDE report could be viewed as slightly bullish for oats, with the 2016/17 ending stocks estimate trimmed by 4 million bushels since May, which carried through to an equivalent drop in 2017/18 ending stocks to 37 mb, which would be the lowest ending stocks in four years. As a percentage of estimated demand, this would represent 21.3%, down from a recent high of 36% in 2014/15.
Then there is the U.S. crop ratings. The weekly crop condition index (CCI), utilizing DTN's index methodology: (3* % excellent + 2 * % good + 1 * % fair - 1 * % poor - 2* % very poor = CCI) has fallen four consecutive weeks to a CCI of 128 as of June 18, down 30 points from the May 21 high and down sharply from the 169 reported on the same week last year. This is the lowest rating seen for this week since the same week in 2011.
While the U.S. rating is spread across nine states, what does jump out is the impact of the growing drought seen in the Dakotas, with the latest ratings showing North Dakota at 30% good to excellent, or a CCI of 61, while South Dakota is showing a good-to-excellent rating of 33%, or a CCI of just 50. Given this spring's Prospective Planting report, these two states are expected to plant 18% of the country's acres. The largest percentage of acres were expected in Texas, at 17.8% of the total crop seeded, while the good-to-excellent rating was also under pressure at 47%, with a CCI of 112. U.S. acres may be revised in the June 30 report.
Crop conditions reported from the prairies are encouraging, with Friday's Alberta Crop Report showing the oat crop rated at 77.8% good to excellent, up 1.8 percentage points from the previous week and higher than the average of the past four years. In advance of the June 29 Statistics Canada acreage estimates, the media released pre-report estimates Friday which suggested an average of 3.4 million acres of oats expected by a number of trade participants, which is unchanged from the April estimate of 3.419 million acres. This could prove low given the struggles to get cropland seeded in northern Alberta and Saskatchewan and the potential need to switch to shorter-season crops such as oats and barley.
Despite the similarities in the spring wheat and oat charts, one difference exists, which could have a bearing moving forward. Spring wheat futures spreads strengthened in Friday's trade, with the inverse in the Sept/Dec and Dec/March futures spreads strengthening, a sign of growing commercial bullishness. The oat spread charts are pointing to the opposite -- the Sept/Dec spread moved from an inverse to a weak carry on Thursday, and this carry increased on Friday. The Dec/March inverse weakened 2 1/2 cents this week to a smaller 1 1/2 cent inverse, down from the 5-cent high reached in early June. Commercial activity is indicating a less-bullish approach to trade.
At the same time, Friday's CFTC data shows noncommercial traders, or investors, increasing their net-long futures position by 51% to 2,121 contracts as of June 20, the largest noncommercial net-long seen since November 2014. With daily and weekly stochastic momentum indicators now in over-bought territory, a sudden change in direction remains a possibility.
DTN 360 Poll
This week's poll asks how you would describe the crop condition in your area. You can weigh in with your thoughts on this week's poll, which is found at the lower right of DTN's Canada Edition Home Page. We thank you and welcome your input!
Cliff Jamieson can be reached at firstname.lastname@example.org
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