Opinions shifting Market conditions are making speculators rethink their position on the crop
Speculators have made a big bet on December oats futures, increasing the speculative portion of open interest in the contract.
That helped oat futures prices rise compared to most grains and allowed farmers to lock in new crop price levels at better values than what were available just a few weeks ago.
The recent rise in oat futures is part of a noticeable shift in speculator opinion on oats, which has been a relatively shunned investment until recently.
“It’s been an incredible trade,” said Scott Merrihew of O’Bryan Commodities in Chicago.
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A combination of factors drove a lot of buying into the December new crop contract.
As expected, funds are liquidating long positions in the July contract as its expiry approaches.
Investors are rolling those long positions into the December contract, raising its price.
However, the more important factor is non-passive speculators steaming into the December contract, Merrihew said.
“At the same time (as the fund roll), the fund has been buying the December outright as well,” said Merrihew.
“We’ve got a sizeable historical position.”
On June 19, Merrihew was eagerly awaiting that Friday’s Commitment of Traders report, which would reveal the size of the speculative position. He was guessing about 40 percent.
The report came in at 39 percent, verifying his expectation for a large position.
In some highly traded contracts, speculators usually hold only a small portion of the open interest, making it hard for them to independently spark rallies or selloffs.
However, oats can easily have double the amount of speculative interest as other contracts because it is not well traded.
The Commitment of Traders report showed that pure speculators in recent weeks had switched from having a net short position in the oats contract to having a slightly net long position.
Speculators had also continued to amass long contracts, moving to a net long of 1,733, an increase of 1,445 in just a week.
On the other hand, the commercial category of farmers, processors and merchants has moved to its biggest short position since June 2011.
In other words, those who actually use oats think the price will fall.
In Oatinsight.com’s weekend oat market report, Merrihew noted that between June 14, 2011, and the end of June 2011, December oats futures fell about 53.5 cents from $3.875 per bushel to $3.34.
“Interesting that we are at similar levels currently,” wrote Merrihew.
