Canada Markets

December Oats Extend Their Uptrend

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Wednesday's December oat trade saw price test the 67% retracement of the move from the contract's July high to September low at $2.80 1/4/bushel, while slumped back to finish lower. The weakening in the December/March spread (brown line, third study) points to a less-bullish approach by commercial traders as the spread moves back to a carry. The purple bars on the fourth study points to a 45% jump in the net-long position held by noncommercial traders, as of Oct. 17 CFTC data. (DTN graphic by Nick Scalise)

Last week in this space, we looked at the December oat contract that had broken resistance at $2.67 1/2/bushel, the 50% retracement of the move from the contract's July high to September low. Investors have since shown they continue to see opportunity, with price closing above the 61.8% retracement on Tuesday while moving above the 67% retracement on Wednesday at $2.80 1/4/bushel, reaching its highest level seen in 11 weeks.

While Wednesday's trade failed to sustain gains achieved during the session to post a modest loss of 3/4 cents at $2.76 1/4/bu., the move did extend the short-term uptrend on the daily chart, although it may signal a turning point for the market given the close near the lower-end of the session's trading range.

The third study shows the Dec/March spread weakening to even money this session, a sign of commercial selling. The closing quotes would indicate the spread ending at a 1/4-cent carry, although this spread could still be viewed as bullish given the lack of carry or incentive to hold oats. At the same time, most recent CFTC data shows investors increasing their bullish net-long position in oat futures by 45% TO 1,670 contracts as of Oct. 17, the largest net-long held in nine weeks. This leaves the market vulnerable given prices already in overbought territory (second study) which could trigger sudden noncommercial selling to trigger a change in direction.

While not shown, the long-term trend on the continuous active chart may provide another perspective on the upside potential for oats (not shown). Resistance is seen at $2.81/bu., the 33% retracement of the move from the February 2014 high to the September 2016 low. A move above this level could result in a further move higher to test $2.98 1/4/bu., which represents the 38.2% retreatment of this same downtrend and an area of resistance that acted to limit upside potential as recently as July.

A combination of Canadian dollar weakness and rising futures has been supportive for cash prices. Manitoba Agriculture's weekly price for No. 2 CW oats delivered Winnipeg slipped to a low below $2.70 in early September, although the latest indication is $2.97/bu. A number of online bids ranged in the $2.95/bu. to $3.05/bu. on Wednesday. This is despite the most recent week 11 data that shows producer deliveries at 593,800 metric tons or 25% higher than the same period in 2016/17.

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

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