* Tiny oats market suddenly hottest grain globally
* Canada crop woes, large short fund position spurs buying
By Christine Stebbins
CHICAGO, June 15 Usually sleepy oats futures
have staged a ferocious rally in the latest week, for their
biggest price jump in nearly a decade, as worries have mounted
about a short crop in Canada, the largest supplier of U.S. oat
"The oat market is up 40 percent 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 (PEP.N) 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
The Canadian Wheat Board on Friday said Canada faces its
worst rain-related planting cuts in grain areas in nearly 40
Canada grows just 15 percent of the world's oats, with
Russia and the European Union producing 55 percent. But Canada
supplies 81 percent of global oat exports -- with the United
States sourcing 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.
Statistics Canada will issue planting estimates June 23.
The U.S. Department of Agriculture estimates U.S. oat
consumption for the 2010/2011 marketing year beginning Sept. 1
at 194 million bushels, with 100 million imported with most of
that coming from Canada.
"Weather in Canada is really tough and there is a big short
in the (CBOT) July and if that short comes out there could be
more upside," said Jay Homan, a CBOT oat broker. "So far, there
hasn't been a big drawdown in open interest, so that could mean
there is more short-covering to come," he added.
Open interest in CBOT July oat futures was at 6,077
contracts, out of 17,044 contracts total for the market, going
into Tuesday's trading session.
"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."
(Additional reporting by Sam Nelson in Chicago; Editing by