November 1, 2001

Market Advisor: Oats Price Jumps

By George Flaskerud, Crops Economist
NDSU Extension Service

The December oats futures price jumped 80 percent in the last four months. The December low was $1.08 on June 24 and the high was $1.94 on Oct. 8. The contract closed at $1.85 on Oct. 29.

Futures prices for oats are higher in the December contract than for the more distant months. When December closed at $1.85 on Oct. 29, May closed at $1.65. In effect the market was inverted.

An inverted market may be reflecting a strong immediate demand, an anticipated future weakening of demand or an anticipated future increase in available supplies. While the specific reason for an inverted market may not be known, the market is currently placing a premium on making sales now.

It is possible to make cash sales now and still participate in futures market price increases by buying an option. May futures closed at $1.65 on Oct. 29. A call option with the right to buy at $1.70 would have cost about 11 cents.

This option strategy is particularly attractive in an inverted market. Sold grain can be replaced with call options at a strike price that is lower than the nearby futures price. In addition, the cost of the option can be partly offset by a savings of storage costs. The interest cost of storing oats for 6 months could be about 6 cents a bushel.

USDA projected a seasonal average farm price for oats of $1.15-$1.45 in the Supply and Demand Report released Oct. 15. Number 1 oats was selling in Minot for $1.50 on Oct. 29.

According to the report, the smallest oats crop on record was produced in the U.S. North Dakota was the largest producing state. Canada’s oats crop was also down this year. Their crop was down by 16 percent from a year ago according to an Ag Canada Report on Oct. 11. Ending stocks are projected to be 24.4 percent of total use in the U.S. and 12.2 percent in Canada.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu