A recovery in sentiment in agricultural commodities, which
on Thursday took oat prices to a record high, may be being fuelled by a return
of funds to the sector, a leading Chicago analyst said.
Rich Nelson, chief strategist at Allendale, said that recent
movements in ag prices "seem to point to fund activity" in the markets,
potentially as investors switch from stocks.
Share markets have made a weak start to 2014, billed as the
worst in four years in Europe and the worst ever on emerging markets, amid
concerns over the impact on developing market economies of the tapering of US
"We have seen stock markets collapse," a factor which have
bought "outside money into grains," Mr Nelson told Agrimoney.com.
While price strength has been most noticeable in arabica
coffee futures, which have risen nearly 30% so far in 2014, and oats, up 31%, it
may also be apparent in smaller moves.
"You are seeing a rising corn prices, without much bullish
news to support it," Mr Nelson said.
At rival broker RJ O'Brien, Richard Feltes, who alerted investors
last month about the potential for a switch in cash from shares to agricultural
commodities, said he had yet to see any evidence of fund cash inflows.
"I have seen nothing official based on that," he said.
However, a trend he had identified was of high frequency
trading funds "becoming more active in spread trading" in agricultural
commodities, attempting to exploit the disparity in moves between futures
contracts for near-term delivery and those covering months further ahead.
Factors such as the poor US weather have placed a premium on
immediate delivery in some crops.
"Because of the movement and volatility in spreads, high
frequency traders are seeing an opportunity, and tooling that into their
algorithms," Mr Feltes said.
The comments came as March oat futures touched a record high
of $4.63 ¼ a bushel in Chicago on Thursday, overtaking the previous top for a
spot contract of $4.59 ¾ a bushel, set in July 2008.
They also gained an, unusual, premium of $0.20 a bushel over
corn, over which oats have not closed since April 2002.
The jump in oat prices has been fuelled by logistical
difficulties in Canada, where industrial unrest and harsh weather have added to
the strain on a railroad system struggling to cope with demands from the oil
industry, besides those created by last year's record wheat and canola crops.
The US is a structural importer of oats, with Canada the
"Remember that nearly half US oat usage is imported
from Canada," Mr Feltes said.
What goes up…
However, with better weather on the way, and the potential
for settlement of Canadian rail union unrest, some commentators have cautioned
on the threat of a sharp retreat in prices.
"The rise in oats looks short-term and artificial," in being
supported by potentially temporary factors, Don Roose, president at US Commodities,
"We see this as a price spike."