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Morning markets: oat prices grain rare premium to corn

Oats set a bit of a landmark in the last session, in trading temporarily above corn in Chicago for the first time in 12 years.

Can they go the whole hog this time, and close above corn too? The March contracts of both grains closed level on Wednesday, at $4.43 a bushel.

Canadian railworkers are doing their bit to help.

Strike threat everted?

Oats' rise has largely been down to Canada's logistical squeeze, with railroad capacity for grains limited by bad weather as well as competition with, for example, offtake from the burgeoning oil sands industry.

And now the Teamsters union, representing some 3,000 workers at Canadian National Railway, has given 72 hours' strike notice.

In fact, it looks like some kind of deal to avert the strike has been agreed negating the need for government to deliver on a threat of legislation to ban the walkout.

Still, that does not mean that the Canadian oat supplies that the US relies on will be ample any time soon.

Half and half and half

"Remember that nearly half US oat usage is imported from Canada," Richard Feltes at RJ O'Brien said.

And this when the US Department of Agriculture forecasts US oat stocks ending 2013-14 at 482,000 tonnes, the lowest since at least 1960, and half those of three years before.

Here's another half.

Half of US oats (actually 47%) "goes for food use, which is highly price inelastic," Mr Feltes said.

Oats takes the lead

Oats for March stood 0.5% higher at $4.45 a bushel as of 10:00 UK time (04:00 Chicago time), up 26% so far this year, on a front contract basis.

(Earlier, while the strike threat looked more real, the contract reached $4.58 a bushel, only just short of the high for a spot contract of $4.59 a bushel, set in July 2008 during the grain price boom.)

Corn, meanwhile, was 0.3% higher at $4.44 a bushel, with mounting talk indeed that the grain's rally risks getting ahead of itself, even after a gain of only some 5% so far in 2014.

Temporary boost?

"At this point we can still reasonably estimate that final 2013-14 corn carryout will be above 1.5bn bushels," one US broker said.

"Sure the corn export sales have been strong lately but that's mainly because the US is the main source of supply.  Ukraine will be online in April and the world will have options for feed grain again."

Furthermore, there is the concern that slow farmer selling so far this season implies a backlog of sales to come to the market later on.

"Large on-farm stored corn stocks will likely come to market soon," the broker said.

"At today's prices farmers have to sell 64% more corn to get the same revenue as they did on this date last year."

'Shed risk premium'

Mr Feltes flagged private estimates that corn stocks held by major origin countries, whose supplies are particularly important for prices, will rise "another 10m tonnes" in 2014-15, after a 24m-tonne increase this season.

"If realised, end 2014-15 major origin corn stocks would advance to the highest level since 1999-00 when the average on farm US corn price was only $1.82 a bushel," he said.

"In the absence of major crop adversity in any of the major origin corn producers in coming months, the corn market will not hesitate to shed risk premium by mid-summer in effort to boost consumption."

Still, on the contrarian side he added that, "trade is openly sceptical regarding further upside gains in corn and wheat, which is typically a necessary component to maintain a rally".

'Susceptible to short-covering'

Wheat itself struggled to keep up its rally, adding 0.25 to $5.87 a bushel.

"Wheat is trying to get legs under it. It's been awhile since it has been able to hold any gain," said Mike Mawdsley at broker Market 1.

And it faces the setback that the fresh bout of cold weather in the US, besides fouling up logistics, so providing support to grain prices on that score, has bought snow to areas of the southern Plains that need it both as protection from frost as well as in terms of being a moisture store.

Still, "with a large net short position in the Chicago wheat market, the market is highly susceptible to short-covering should there be further declines in crop ratings or reductions in estimated supplies," Vanessa Tan At Phillip Futures said.

'On the verge of significant collapse'

Soybeans, meanwhile, eased 0.5 cents to $13.16 a bushel for March, feeling some of the latest pressure that Kim Rugel at Benson Quinn Commodities identified in the last session.

"It felt like soybeans were on the verge of significant collapse on Wednesday, after breaking from the early high, but supportive technical momentum studies remain intact," Ms Rugel said.

After the contract hit $13.21 a bushel in the last session, "the next upside objective is the recent high of $13.30 a bushel".

However, soybeans "traded with a defensive tone late in the session and it may take solid weekly export sales of soybeans and/or soy meal to make this happen".

Last week's US soybean export sales, to be revealed later, are expected at 550,000-850,000 tonnes, with any signs of cancellations of orders by China, which is seen likely to switch demand to Brazil now the harvest there is up in earnest, likely to be seized upon.

Corn sales are seen at 900,000-1.2m tonnes, and wheat export sales at 500,000-700,000 tonnes.

Key meeting

In New York, arabica coffee struggled to maintain its rally, easing 0.2% to 142.75 cents a pound, without any fresh news on the Brazilian dryness which has sent prices up 29% so far in 2014.

But raw sugar, which is also being underpinned by Brazil dryness fears, added 0.1% to 16.12 cents a pound for March.

Still, this could change if India, at last, agrees on a sugar export subsidy, with another meeting due later.

"India's agriculture minister has indicated that a reworked raw sugar export subsidy proposal will be presented to the Cabinet today," Luke Mathews at Commonwealth Bank of Australia said. 

"There is speculation that the proposed subsidy amount - previously suggested at $32 a tonne according to various newswires - will be raised to help make Indian exports internationally competitive."

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