Oats Quietly Stage Historic Bull Run
Today’s Spotlight Market
The dynamics of the Oat market have changed significantly from one of the more popular crops grown in the upper Midwest to more of an afterthought, as Corn and Soybean production has become more profitable for producers. U.S. producers planted 3 million acres to Oats in 2013, which is down from over 20 million acres 40 year ago.? Oat usage for animal consumption has fallen dramatically over the years and accounted for significantly less than 1% of U.S. feed grain production last year.
Fundamentals
The relatively unknown Oat futures market is in the midst of a historic bull market run, as shipments from Canada, the world?s largest Oat exporter, have been delayed due to logistical issues.? Record crop production in Canada this past season has increased the demand for rail cars which are used for shipment of grains for the export market. This increase in rail car demand has created a back-log for grain shipments out of Canada, with Oats taking a back seat to more ?important? crops such as Canola and Wheat.?
Oat shipments are running over 20% behind year ago levels, causing some concerns that U.S. end-users may be caught short of supplies in the near-term. This potential supply squeeze is forcing-up the price of Oat futures, as traders fear some millers may buy near-term futures with the potential to utilize the delivery process to obtain needed supplies. Supply tightness can be seen in the March/May Oat spread, where the front month March futures are trading at a 35-cent premium to the May contract. Front month Oat prices have even surpassed the price of front month Corn. This is an occurrence that has happened rarely over the past 40 years!
Technical Notes? -? View Today’s Chart
Looking at the daily chart for March Oats, we notice what might be a double-top formation which would be confirmed should prices fail to close above the previous high of 467.25 made back on February 7th. Given that a logistics issue is the main catalyst behind the historic price rise, we could see a sharp price decline as soon as Oat shipments from Canada increase. Prices are above both the 20 and 200-day moving averages, and the 14-day RSI remains below overbought levels, with a current reading of 65.42.? The recent high of 467.25 is seen as a key resistance level, with support seen at the January 28th low of 402.00.
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