Oat Prices Poised to Rebound
Corner | August 27, 2016
Dragged down too far by the slump
in other grains, oat prices are ready to rebound this year.
aren’t just for horses and quakers anymore. investors should get a helping of
Prices for the grain, which is used as animal
feed as well as breakfasts, started weakening steadily in 2014 and have since
reached levels not seen since the 2008 financial crisis. In early 2014, oats
fetched more than $4.60 a bushel compared to $1.83 recently.
The fact that prices are so low by historical
standards suggests a bounce is in the offing. As economists say, the cure for
low prices is low prices.
Investors wanting to profit from a rebound
should consider purchasing December-dated futures contracts on the Chicago
Board of Trade division of the CME. For those who want to participate directly
without buying futures, there are scant possibilities, since there isn’t a
fertilizer exchange-traded fund, such as the
Global X Fertilizer/Potash ETF
(ticker: SOIL). Rising crop prices help plant-food revenues grow.
Here’s why the outlook is bullish.
Prices have fallen because of increasingly
large harvests for all sorts of grains. The global corn crop (the dry version
used mainly for feed stock) is projected to total 1.03 billion metric tons for
the 2016-17 harvest, up from 0.96 billion tons last year and still above the
prior year’s total, according to the latest Agriculture Department estimates.
As a result, corn prices slumped from more than $8 a bushel in mid-2013 to
$3.28 recently. Wheat followed a similar pattern.
The knock-on effect has been steady downward
pressure on oat prices. “You can’t hold the price of oats up against the
falling prices of other feed grains,” says Jerry Norton, feed grains analyst at
the USDA. Both corn and oats are fed to animals, with farmers switching between
grains depending on price, hence the linkage.
SO WHAT? THERE ARE REASONS
to believe oat prices have come down too far.
The low price of oats has already caused a
notable change in Canadian production. “The total acreage seeded to oats
dropped 14.3% from 2015,” says Joe D’Aleo, chief meteorologist for agriculture
at Weatherbell Analytics in New York, citing Canadian statistics. “It appears
that this time, weather was not the prime reason for any shortfall.”
Or, reading between the lines, the price oats fetch is now
just too low for some farmers to bother growing them. That potential production
cutback would at the very least help keep prices steady, and could propel them
Another reason investors should be bullish is
the development of a favorable formation on the price chart. The key price
level to watch is $1.8450. If the closing price at the end of the month stays
above that level, it will be a major bullish signal, says Shawn Hackett, author
of the Hackett Money Flow Commodity Report. It’s bullish because it helps form
a price floor, leaving little room for traders betting on falling prices. He
does acknowledge that weekly and daily price levels are sending “mixed
One thing traders need to know about the
oat-futures market is that it is very thinly traded. That means prices for oats
futures can move up or down fast. It also can make exiting a big position at a
good price difficult. December-dated futures for oats closed Friday around
$1.83 a bushel, down 0.8% on the week.