Oat Futures Contango: Is the CBOT Contract At Risk?

The following is a recent report in The Spread Trader newsletter, published by Klarenbach Research.

My colleague, Brent Futz, a former WCE floor trader with 40 years of experience trading commodities, leads that publication.

May The Oat Futures Contract R.I.P.

A number of years ago, I was approached by a large firm to trade oats on their behalf on the floor of the CBOT. 

Since then, I have monitored the market mostly for entertainment value.  

The recent trade in the contract has gone beyond entertainment and has raised red flags about its future.

Chart 1 shows the July Oat futures contract over the past 6 months. 

The recent sharp decline occurred at a time when the grains and oilseed market experienced similar losses. 

After establishing a contract high of $3.85 on May 20th, the market experienced a violent sell-off to approximately $3.05. 

The sell-off may be dismissed as price discovery, but what happened afterward should raise red flags.

Chart 1: July 2026 Oat Futures Contract

To add insult to injury, the July long is currently rolling their position forward into September at a substantial contango, the July/Sept spread now trading at $.21 under. 

To put the consequences of the large contango into perspective, the long is being forced to roll its position at a contango of approximately $ 0.10 per month. 

If the large contango continues over the course of a year, the long is increasing its average price by $1.20. For example, after a year, the breakeven of the long-established at $3.85 is now $5.05, an unlikely proposition. 

Advantage goes to the short; a significant contango substantially shifts the playing field in favour of the short.

Chart 2: July2026/Sept 2026 Oat Futures Spread 

It is difficult to determine whether the large contango will persist, but it poses a significant risk to the perpetual long. 

The effects of a large contango are not conjecture; I have been involved in a contract faced with similar market dynamics. 

A well-known commodity fund established a significant long position, rolled their position at full carry for two years before liquidating at the same price that the position was established.

 In the end, there was a significant transfer of wealth from long to short. 

The contract did not provide an effective hedge for the long or an effective strategy for the fund. \

Finally, the contract was delisted, never to return. 

Time will tell if the oat futures contract suffers the same fate. 

The above analysis emphasizes the role a spread should play in any trading strategy, technical or fundamental. 

I have traded commodity spreads for 43 years, mostly as a local. 

Please feel free to contact Brent with questions and comments at b.futz@hotmail.com

Brent covers this technical setup and specific price targets in depth in the The Spread Trader.

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Trent Klarenbach, BSA AgEc, PAg, publishes the Klarenbach Grain Report,  Klarenbach Special Crops Report and The Spread Trader newsletters.                                                                                                                                                                                                                                                                                                                                                                                                   

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