If oats knows, then the grains rally has further to go.
The Chicago oats contract has a reputation as a leading indicator.
And, in good news for grain bulls, it has been a strong performer of late.
OK, the best-traded (which is not saying that much) March contract stood down 0.3% at $3.19 ¾ a bushel as of 10:00 UK time (04:00 Chicago time).
But that represented a retreat from the best close for a nearest-but-one contract in five years.
The rally has been spurred in part by weather upsets in Canada.
As Canada’s farm ministry, AAFC, noted last week, “the oat harvest in the Prairie provinces, where about 90% of total Canadian oat production originates, has experienced wet field conditions.
“Harvest is nearly 90% complete with varied yields reported and high possibilities of quality issues.”
And given the extent of unharvested area, “and continued wet and cold weather throughout the rest of the harvest season”, AAFC said it expected to downgrade its forecast for a harvest of 4.02m tonnes this year, up from 3.44m tonnes in 2018.
Unsurprisingly, oat prices in the Prairie provinces themselves “have been strong for the time being, due to delayed harvest and quality issues”, AAFC said, reporting prices 3-9% above year ago levels for 2019-20 so far.
Canada’s rail strike has added an extra kick.
Nearly 3,200 workers at Canadian National, the country’s largest rail operator, walked out on 19 November, to protest against alleged chronic overwork and unsafe conditions.
That has been a big boost to Chicago prices, given that the US is an oats importer, with Canada naturally the default origin.
And US production of oats is seen down by some 5% for 2019-20.
The March oat contract is up 6.0% since the eve of the strike.
Nor do investors appear overly confident of an immediate resolution.
The March contract has gone into overdrive since the strike, compared with the spot December lot.
Compared with a discount of nearly $0.04 a bushel ahead of the industrial action, it now as a $0.06 ¾ a bushel premium.
It looks like they are not being reassured by AAFC ideas that oat prices will fall over 2019-20, with the ministry forecasting average Chicago values of $2.35-2.65 a bushel (putting $2.50 a bushel at the centre of the range) compared with $2.54 a bushel last season.
Chicago investors are not seeing prices falling below $3 a bushel even out to July next year.
Canada vs US
“The crop year average price of oats for 2019-20 is expected to be slightly lower than for 2018-19,” the ministry said, noting that Canada’s own “carry-out stocks are forecast to increase but will remain tight”.
However, of course given the transport block-off between Canada and the US, Chicago prices could rise even if stocks north of the border proved ample.