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Oat Prices Poised to Rebound
Commodities Corner |  August 27, 2016 

By Simon Constable

Dragged down too far by the slump in other grains, oat prices are ready to rebound this year.

Oats aren’t just for horses and quakers anymore. investors should get a helping of them, too.

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 higher.

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 signals.”

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.


 

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