Canada Markets

Oats Futures Diverge from Grains on Thursday

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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March oats ended higher for the third day, breaking above moving average resistance, while the March/May contract inverse shows signs of strengthening (first study). As of Dec. 18 CFTC data (second study), noncommercial traders held a bullish net-long futures position, while the lower study shows that despite the upward move, stochastic momentum indicators have yet to reach overbought territory. (DTN ProphetX chart)

One market that missed out on Thursday's bearish move in grains was the oat market, with the March contract leading with a 3-cent gain to $2.88 3/4 per bushel. Thursday marks the third straight higher close for the March contract, while the seventh higher close in eight sessions. The March contract inverted over the May contract on Monday of this week while the May contract came within 1/2 cent of inverting or closing above the July contract, ending with a weak carry of minus 1/4 cent.

Tuesday's move resulted in a move above the contract's 20-day moving average and Wednesday's move saw a close above the contract's 50-day moving average. Thursday's move ended with a close above the 33% retracement of the move from the contract's November high to December low, calculated at $2.86 1/2 per bu., while testing the 38.2% retracement of the same downtrend at $2.89/bu. but failing to hold above this level. A move above this level could result in a further move higher to the 50% retracement at $2.94 1/4 per bu.

While CFTC data has not been available due to the U.S. government shutdown, noncommercial traders have held a bullish position since September, as seen on the histogram on the attached chart (second study), while the first study points to a growing bullish sentiment among commercial traders as indicated by the 4 1/2-cent inverse in the March contract (March trading over May).

Data continues to appear bullish for Canadian oats. As of week 23 Canadian Grain Commission grain handling statistics, covering the week ending Jan. 6, Canada has exported 744,000 metric tons of oats. While this is just .2% higher than the same week in 2017-18, this volume is 32.9% higher than the five-year average for this week. Over the past five years, exports through licensed facilities as of week 23 have averaged 24.4% of the crop year's total exports, an average pace that can be extrapolated to total crop year exports of over 3 mmt, above the current 2.5 mmt estimate released by AAFC, although available supplies will prove a limiting factor.

AAFC's December forecast points to a 2018-19 carryout of 650,000 mt, which would be the smallest carryout seen since 2012-13. This is well-below the five-year average carryout of 844,960 mt and the 10-yearaverage at 889,670 mt. Over the first four months of the crop year, 87% of volume exported is destined for the U.S., with no sales shown for China in CGC or Statistics Canada data despite reports that this is a rapidly growing market.

The most recent bid reported by the Manitoba government for No. 2 CW oats delivered Winnipeg is $3.61/bu., while 19% higher than the four-year average for the first week of January. There are reports of $4 bids available on deferred delivery contracts. Saskatchewan government data for No. 3 CW oats delivered Saskatoon, as of Jan. 9, shows a bid of $3.13/bu., up 25.8% from the four-year average for this week.

A Twitter post reporting on a Manitoba Agriculture speaker on Thursday indicates that projected oat returns for 2019 are disappointing, along with wheat, while cash prices may remain strong in order to buy acres this spring.

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

Follow him on Twitter @CliffJamieson

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