Oats’ Strength Sparks Correlation Investigation

CBOT Oats futures closed above corn for the first time in nearly 12 years, sparking examinations of correlations among traders as to what it means.  \r\n   The Powerline Group took this up in their newsletter Thursday, citing an old saying that “Oats Knows,” implying that oats often is a leading indicator of upcoming price action in other grains, especially corn.\r\n   On the face of it, there didn’t seem to be much of a correlation between oats futures and corn.  But when Powerline analysts compensated for contract differences, there was a strong correlation – until about Jan. 1.  That’s when oats diverged above the corn equivalent, closing Thursday at an unprecedented high relative to corn.\r\n   This might indicate corn is headed higher, but the Powerline analysts said it could just as easily mean oats are out of line and will come back down.  \r\n   It should be pointed out that a large part of the reason for Oats’ strength is related to transportation issues that should be resolved in a few days to weeks.  A threatened strike of the Canadian National Railway by the Teamsters Union over a contract dispute could be settled quickly, and weather-related slowdowns will go away as temperatures warm.\r\n   Corn prices continued Thursday’s decline in overnight trading despite larger-than-expected weekly export data.  Traders may be concerned about reports that China, on its first day back from their Lunar New Year’s holiday, cancelled 220,000 tonnes of US corn.  Traders may be worried that more cancellations are to come. \r\n   Analysts expect the USDA to boost export predictions for corn and soybeans in Monday’s World Agricultural Supply and Demand Estimates report, given the unexpectedly high level of shipments since the start of the marketing year Sep. 1.\r\n   That’s especially true for soybeans, where reported old-crop sales already are 6% above the USDA’s current export estimate for the entire marketing year.\r\n   China is expected to cancel some of its orders for US soybeans in coming weeks as more South American new-crop beans arrive at the ports at much lower prices.  A wholesale shift to South America is expected once Chinese importers can be assured of somewhat timely loading and delivery.\r\n   Cargill’s beef plant in Schuyler, Neb., was closed early Thursday by a fire and ammonia leak, Reuters reported.  The plant has a kill capacity of about 5,000 head a day.  Company spokesman Michael Martin said both shifts were cancelled Thursday, and he did not know if operations could resume by Saturday.\r\n   An Allendale, Inc., analyst said the situation could have been worse for the cattle industry if it had happened when fed cattle numbers were high. \r\n   Limited cash cattle trading was reported in Iowa Thursday at $141 per cwt on a live basis and at $225 dressed.  No trading was reported in the Plains, where bids were reported at $139 live and $235 dressed, and asking prices were around $146 live.\r\n   The USDA’s five-area live-basis fed steer price last week was $145.80 per cwt, down $2.42.\r\n   The USDA’s boxed-beef cutout was sharply lower Wednesday with the choice cutout down $3.13 per cwt at $213.51 and the select cutout down $4.32 at $212.31.  The choice/select spread widened to $1.20, and there were 128 loads of fabricated product sold into the spot market.\r\n   The CME Feeder Cattle Cash Index for the seven days ended Wednesday is $170.03, down $0.47, while the March futures contract settled Thursday at $167.00, up $0.07.\r\n