"The oat market is up 40% in a week – it is the hot commodity globally right now," said Rich Feltes, senior vice president of MF Global Research in Chicago.
Before the age of the automobile, the oat market was a buoyant market for horse feed. But in recent decades it has just been a quiet niche for makers of breakfast cereal to price their main ingredient.
The Chicago Board of Trade oat market, the world’s price benchmark where manufacturers like Quaker Oats hedge investments in supplies, rallied for the sixth straight day on Tuesday — hitting a five-month top of $2.77 a bushel in the July delivery, up an expanded 30-cent daily trading limit.
Volume remained strong, traders said, with buying by commercial grain firms and speculators alike. In a market with 1,000 contracts or fewer traded on a normal day, preliminary volume on Tuesday was 4,864 contracts, up from 3,820 on Monday.
The Canadian Wheat Board on Friday said Canada faces its worst rain-related planting cuts in grain areas in nearly 40 years.
Canada grows just 15% of the world’s oats, with Russia and the European Union producing 55%, but Canada supplies 81% of global oat exports. The United States sources more than half its needs from Canada.
"Before these floods the trade was expecting 1.4 million oat acres. It’s reasonable to assume that a third of that does not get in – 350,000 to 400,000 acres," Feltes said.
"If we get any additional stress July-August and/or an early freeze in Canada it is going to further exacerbate a tight situation," Feltes said. "Right now the rally seems to be not only supply fears but shorts caught and can’t get out."