Oats: Saskatchewan is too cheap   Even a quick look at the Basis: MB and SK minus CBOT Futures chart reveals that Saskatchewan average delivered elevator prices for Oats are far too low. The explanation can be found in the Oat Pricing Comparison where Saskatchewan elevator prices are mimicking CBOT prices in US dollars rather than their Canadian dollar value. The result has been wild swings in the Oat Spread: Manitoba minus Saskatchewan which highlight Saskatchewan’s comparative Bargain status.   Underpriced Saskatchewan Oats pose another problem because they are failing to pass along a powerful major market signal to local farmers. The US futures market components of the Value Ratio: Oats divided by Spring Wheat are giving a clear signal to sell Oats while holding Spring Wheat for later recovery. Meanwhile the Value Ratio reading for Saskatchewan Oats versus CWRS is at a much lower level that might actually be discouraging Oat marketing.   Fortunately, the chart outlook still looks very positive, and that might provide time for things to fall into line. For instance, in the case of Saskatchewan Oats, the recent downdraft in prices confirmed that previous resistance has become underlying support. Thus, last week’s pullback lows might be Saskatchewan Oats’ new floor.   Once Oat futures break out of their current trading range, prices should extend beyond their standard rally towards their “swing move” objective around the US$3.65 level. While this could seem “pie in the sky”, note that the last dozen years of CBOT Oat prices have had two clear valuation ranges: above US$3/bu or below it. Oats’ global supply/demand picture suggests that higher valuations are justified, and Prairie prices should participate.

November 07, 2018

Chart analysis and commentary by Harold AGJ Davis