Oat market stabilizes

Highlights

  • Cash oat bids remain quiet on this side of the border, with Prairie bids spotty and location sensitive 
  • Price sluggishness in oats not so much a demand issue, but rather the result of bigger than expected Canadian oat production this summer 
  • Other than periodic deferred demand reloads, winter cash oat rallies are likely to be contained

Chicago oat futures have built a modest amount of price premium back into the market since bottoming on Sept. 5. However, after gaining about 20 cents from the early September low, the nearby December oat futures contract stabilized around the US$2.50-per-bushel level for the better part of the past two weeks.

In terms of overhead chart resistance, the 100-day moving average serves as a near-term price ceiling right about $2.55 per bushel, which is keeping things from going higher on a technical perspective. Also noteworthy, the $2.55 level marks the 33 per cent Fibonacci retracement of the move from the contract’s July high to September low.

Cash oat market

Cash oat bids remain quiet on this side of the border, with Prairie bids spotty and location sensitive. Milling oats likely trade around CAD$2.50 to $2.60 per bushel picked up in southern Saskatchewan, with freight knocking down the price as you move further northeast.

Ongoing price sluggishness in the cash oat market is not so much a demand issue, but rather the result of bigger than expected Canadian oat production this summer, last pegged by Statistics Canada at 3.802 million tonnes, up from 3.2 million tonnes last year.

With a big crop here and good quality, it should help replenish commercial inventory.

Other than periodic deferred demand reloads, winter cash oat rallies are likely to be contained, something like 25 to 40 cents per bushel may be about the best we can expect.

Price appreciation in Southeastern Saskatchewan canola sees price bounces towards the upper end of that range because of closer proximity to the U.S. market. I find it doubtful that oat miller drawing from northeastern Saskatchewan needs to surpass $3 per bushel in a deferred delivery position, which makes high $2’s generic elevator. Add 25 cents per bushel to Manitoba.

Marketing oats

Marketing oats this year will be a case of being patient, but restraining any desire to become greedy.

If someone needs to sell more, I would be inclined to wait for the next swing of commercial reload and look to sell deferred delivery positions some four to six months out to capture carry. Today’s pricing offers no desire to move forward. It may be some time before we make our next sale.

It is worth noting that the U.S. Department of Agriculture last week in its U.S. Small Grains Summary (Sept. 29) reported U.S. oat stocks as of Sept. 1 at 71.8 million bushels, down 8.6 per cent from the same date last year.

While end-users appear sufficiently supplied for now, this tightening of U.S. oat inventory could eventually result in some measure of hike to U.S. oat imports, which flows mostly from Canada.

We may already be starting to see some initial flickering of realization of tighter down-the-road U.S. oat stocks as Chicago futures spreads have strengthened over the past two weeks given supportive commercial buying interest. The December/March contract spread has strengthened from minus eight cents to minus four cents during the past two weeks (March trading over the December). This hints at a desire to pull oat supply forward in the market rather than to store product.

Continued support from both the commercial and non-commercial players in Chicago oat futures could result in an eventual breach of chart resistance at $2.55 per bushel for the nearby December contract.

Bottom line

Recovery in Prairie cash oat bids likely will not happen until new crop oats have to start competing with wheat for acres later into the winter and next spring.

Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.comto find out more about his services.