If oat traders want to know where prices are headed, it’s simply a matter of glancing at the corn-trading pit.
“Corn’s limit down today and so are oats,” said trader Vic Lespinasse, from the floor of the Chicago Board of Trade July 7. “When corn is moving in limit moves, it tends to overpower everything else. For the time being, it’s a huge influence on the oat market.”
Despite neutral fundamentals – a huge 2007-08 crop balanced off by fewer planted acres this year – oats have enjoyed an upward ride in the last few months, thanks almost entirely to the phenomenal run-up in corn prices.
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After dropping below $3.50 per bushel in late March, oat prices climbed steadily in the spring and early summer, with the December 2008 futures hitting a contract high of $4.86 per bu. on July 3. The limit move July 7 pushed December oats down 20 cents, to $4.66 per bu.
The limit down action proves that we’re in a time of hypersensitive markets, Lespinasse said.
“Last Wednesday (July 2), we were limit up on corn, just on the possibility that a week later we might have some hot and dry weather. That doesn’t look very likely now, and as a result we’re limit down,” said Lespinasse, a commentator on the markets for grainanalyst.com. “We’re (the corn market) strictly a creature of the weather and will remain that way all this month, because this is the critical month for corn.”
Lespinasse, a member of the CBOT since 1974, can remember the market being sensitive to news, but this year is distinct.
“The difference this time is that the hypersensitivity of the market is lasting a lot longer than it did in the past…. It didn’t last for months upon end, like it has this time,” he said.
Lespinasse expects the corn market to swing widely, on every nugget of weather news, for a few more weeks.
“At least to the end of July,” he said.
Although he agrees the oat rally is largely on the back of corn futures, analyst Randy Strychar noted that oat fundamentals are having an effect elsewhere.
Mainly, at the local elevator.
“The cash basis levels… is clearly reflecting the ample supply of oats that the commercials are seeing from the 2007 crop,” said Strychar, of Ag Commodity Research.
Most Canadian and American millers have already filled their storage bins, thanks primarily to last year’s huge Canadian crop of 4.7 million tonnes. As a result, basis has widened to unheard of levels.
“Cash bids in Saskatchewan are as wide as a whole dollar under the futures,” said Terry Tyson, grain procurement manager at Grain Millers Canada in Yorkton, Sask.
A typical oats basis, Tyson said, is 35 to 40 cents under futures prices.
For oats delivered to Duluth, Minn., the basis stands at 50 cents under futures prices, compared to a normal Duluth basis of 10-15 cents over.
“I traded oats for 30 years and I’ve never seen basis levels like those,” said Strychar.
In addition to corn prices, concern about dryness in north central Saskatchewan is also providing a margin of support for oats, Strychar said.
That aside, Agriculture Canada expects 2008 oat yields to match historical trends on the Prairies.
In its July 2 crop outlook, Ag Canada estimated oat production in 2008 at 3.5 million tonnes. That’s down 1.2 million tonnes from last year, due to a 19 percent drop in acreage in 2008.
“We look at the weather overall for the Prairies… and what we’re seeing is a mixed weather pattern,” said Chris Beckman, coarse grains analyst for Ag Canada. “So we just stuck with our trend yields.”
For this year’s crop, Ag Canada expects an average oat yield of 2.64 tonnes per hectare, or 69.3 bushels per acre, slightly above 2007 average yield of 67.9 bu. per acre.
