* Tiny oats market suddenly hottest grain globally
* Canada crop woes, large short fund position spurs buying
By Christine Stebbins
CHICAGO, June 15 (Reuters) - 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 imports.
"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 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 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 David Gregorio