For the first time since the Commodities Futures and Trading Commission (CFTC) began reporting net positions by category, oats were not reportable last week. Hence no COT report from us this past weekend.
Before I get into my tirade on this subject, I want to make it clear I believe strongly in the need for a functioning oat futures contract.
What is likely a surprise to most oat traders is the there is a limit of 20 reportable traders necessary to create a Commitment of Traders report for a commodity. The number of reportable traders for oat futures and options was 23 on Sept 4 (see above). Based on the fact the CFTC did not issue an oat COT last week, the number must have dropped below the 20 limit. When and if that number increases to 20 or above the report will be created again. The reportable quantity for oats is 60 contracts. Anyone holding that level or larger would show in the CFTC report as a reportable trader.
Why is the above important to the oat market? The combination of declining number of traders, and open interest for oat futures and options falling to a record low last week (see below), has put the future of the oat contract in serious doubt.
The deterioration, or as some in the oat industry say, the slow death of the contract, is not fresh news, and has been a concern for the industry for nearly 10 years.
There are to be certain many and various reasons for this deterioration, which I will not get into today. What is of more concern is the fact the oat contract is indeed dying a slow death, and that death may in fact be accelerating.
The impact of losing the CBOT oat contract to the North American (NA) oat industry is to say at the very least substantial. Losing visible public price transparency will have “serious” consequences for all players in the oat industry from growers to line companies, traders, speculators, hedgers, oat millers, and food companies.
The North American oat market will continue to function without a contract, but in our opinion just not as efficiently or robustly.
Signs have been pointing to oats becoming a “special crop” that will be in time, largely be a contracted crop, based on what millers need and some left over for feed on farms.
To be certain there are other global oat markets that have never functioned with a price discovery tool such as the CBOT oat contract.
Many grain industries function without futures contracts. EU and Australian oat markets have managed to sustain an oat industry in some form. But they have struggled to understand where the real value is relative to supply and demand, and have been plagued with inconsistent production and market signals for growers.
Having traded and managed for the largest grain company in Canada in the 80s and 90s, I can tell you the CBOT oat contract, in combination with US buyers willing to contract for 90% of the quality growers produced, provided the single largest crop advantage in Canada.
The ability to hedge with the CBOT contract provided a robust market that in some years saw farmers contract for nearly 0.700 mmt, in some cases 6–12 months before growers even seeded crops. This provided the oat market, top to bottom, with a large degree of predictability, and that’s what a healthy, growth market requires, and in most cases profitability.
Is the oat market as we know it today fixable? In my opinion, and that of many others, No!
Just how fast the market continues to decline is not clear, or whether the oat contract just lingers on the vine for years.
What is clear is the contract is broken, indeed dying a slow death, and would be the loss of a major market advantage for the North American oat industry.