Canada Markets

The December oat contract is currently on track to post its fourth consecutive weekly gain this week since reaching a weekly low of $3.26/bu on the week of Sept. 29. At the same time, this week's high of $3.56/bu has yet to test the September high of $3.57 3/4/bu and the August high of $3.60 3/4/bu. A breakout to the upside from the current triangle pattern will also require the breach of the 2014 February high of $3.61 3/4/bu.

According to the middle study, momentum indicators continue to trend higher and indicate that a further move higher may be possible prior to prices reaching an over-bought situation above 80%.

The lower study indicates a weakening inverse seen in the nearby futures, with the Dec/March spread (black line) falling from a 17 1/4 cents inverse (December trading over the March) in early August while is currently reported at a 13 1/2 cents inverse, which is a less bullish approach on the part of commercial traders. The March/May spread (blue line) has also weakened, falling from a 10 3/4 cents inverse in August to a 7 cents inverse so far this week.

Given a waning bullishness seen in the commercial sector seen in weakening spreads, recent strength may be due to noncommercial buying activity. The most recent CFTC data indicates that non-commercial traders held a net-long position of 2,431 contracts as of Oct. 14, which is slightly lower than the previous week but the second highest net-long position held since Aug. 1 of this crop year.

The long-term continuous chart would indicate that a break to the upside would result in a potential test of resistance at $3.71/bu, the upper end of a gap in trade formed on the continuous chart in the move from the September contract to the December contract. Given a breakout to the downside, the long-term continuous chart would indicate support in the $3.25 to $3.28/bu range.

AAFC's recent update in Canadian grain supply and demand data for October did not change the situation for oats, with exports left unchanged at 2.1 mmt, slightly lower than in 2013/14, while exports from licensed facilities as of week 10 indicate year to date volumes to be 5.9% above year-ago levels.

Tuesday's Canada Markets Blog shows the likelihood of oat production being increased in the final December Statistics Canada report, based on November estimates. Over the past five years, oat production has been increased an average of 2.7% from the September estimates to the November estimates, although it's important to note that oat production was reduced from the September report to the December report in three out of the past five years from 2009 to 2013.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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