Oats are cereal grains derived from the seeds of the oat plant. They are not only grown for human consumption — in the form of oatmeal and rolled oats — but also are one of the most common sources of livestock feed.

Wild oats have been growing in the Fertile Crescent of the Near East since about 12,000 BC but were initially seen a weed. They would later become domesticated in the Middle East and Europe during the Bronze Age, making oats one of the last grain crops to be domesticated.

Today, global oat production is more than 26 million tonnes per annum. Due to its importance as a source of human and animal food, oats futures contracts are widely traded on commodity exchanges.

Oats Futures Contract Specifications
Symbol
CME Globex: ZO // CME ClearPort: O
Exchange
CME
Tick Size
$12.5
Contract Size
5,000 bushels
Contract Months
March, May, July, September and December
Trading Hours
8:30 a.m. to 1:20 p.m CT (Mon-Fri) 7:00 p.m. – 7:45 a.m.(Sun-Fri)
Settlement
Deliverable
Last Trading Day
The business day before the 15th calender day of the contract month

Uses of Oats

Oat futures are popular on the commodity market because the grain can be used to make a wide variety of products. Here are some of them:

Steel-cut oats: Also known as Irish oatmeal, steel-cut oats are groats of whole oats that have been cut into two or three pieces.

Whole oat groats:  These are oat grains that have been dehulled and treated to denature the enzymes. Their bran layer is still intact, so they are rich in fiber.

Whole oat flour: Made from whole oat grains, whole oat flour has a high protein and fiber content.

Low-bran oat flour: The flour is made with oats whose bran layer has been removed, so it has lower protein and fiber content.

Rolled oats: These are rolled whole oat groats that are cut into various thickness

Instant rolled oats: Quick and instant rolled oats are made from steel cut oat groats.

Baked oat products: Oats are also used in a variety of baked foods, such as oat bread, oatcakes, and oat cookies.

Cosmetic products: Oat extracts have a soothing effect on the skin, so they are used in certain cosmetic products.

The Largest Producers and Consumers of Oats

Oats are grown in the temperate regions of the world. According to the United States Department of Agriculture (USDA), the top producers include the EU-27, Russia, Canada, Australia, the United States, Brazil, China, Belarus, Ukraine, Chile, Argentina, and Kazakhstan. Canada, Australia, the EU, and Russia are the largest exporters.

In terms of consumption, the EU tops the list of oat consumers, followed by Russia, United States, Canada, China, Brazil, Australia, Belarus, Ukraine, Argentina, and Norway. The US is the biggest importer of oats. Other big importers are China, Mexico, Norway, and Japan. Oat futures contracts are the most popular means of trading the commodity.

Why Trade Oats Futures Contracts

Traders have different reasons for playing the oat futures market. To some traders, the market provides opportunities for short-term speculative trading, while to others, the oats market provides a means for portfolio diversification or hedging against inflation. Players in the oat production industry trade oat futures to hedge their price risk.

Speculative trading: The majority of traders in the oat futures market are there for speculative trading. These traders aim to profit from the short-term fluctuations in oat prices.

Diversifying portfolio: Oat futures is one of the popular agricultural commodity futures, which fund managers and investors use to diversify their portfolio away from stocks and bonds. Spreading their investment across many asset classes helps them to reduce the effects of market risk on their portfolio.

Hedging against inflation: The purchasing power of paper money is regularly being eroded, as central banks frequently lower interest rates and print more money. So, some people invest in commodities, such as oats, to protect their wealth from inflation since commodity prices increase when the economy is heated up.

Securing a good price: Oat producers sell oat futures contracts to secure a profitable price for their produce, while merchants and retailers buy the contracts to ensure a stable supply of the commodity.

How to Trade Oats Futures

Oat futures contracts are offered on the Chicago Mercantile Exchange (CME), and they can be traded from any part of the world through the Globex electronic trading platform. One oat futures contract is equivalent to 5,000 bushels (about 86 metric tons) of oats, and the price quotation is in cents per bushel. The minimum price fluctuation is ¼ of a cent per bushel or $12.50 per contract.

The contract normally expires in the months of, March, May, July, September, and December. Trading ends on the business day preceding the 15th calendar day of the contract month. At expiration, the contract is settled by physical delivery. The last delivery day is the second business day after the last trading day. Traders, who don’t want to take or make delivery of the commodity, can roll over their contracts to the next expiration months.

To start trading oat futures, all you need to do is to create an account with the exchange through your futures broker and deposit the required margin. Since it is a leveraged instrument, you need not have the full dollar worth of the contract before you can trade it. However, you have to be cautious about leveraged instruments — while you can make more money with them, you can also lose more.

Oat Futures Trading Strategies

Trading Strategy

Trading Strategy

The oats futures market is a really tough market for most trading strategy designers. The liquidity isn’t that great compared to other more popular markets, which makes slippage a great concern.

However, by putting in enough effort it is possible to find a strategy for this market. Just make sure to account for a lot of slippage!

If you’re interested in getting edges for trading strategies, we recommend that you have a look at our unique edge membership!

Oats Seasonality

Here is a seasonal Chart of the market:

Oats Seasonality

Oats Seasonality

Factors That Affect Oats Futures

There are many factors that affect the pricing of oat futures contracts, which an oat futures trader must watch out for. Here are some of them:

Weather conditions: Though less sensitive to weather situations than wheat, oat production can be affected by weather events. Adverse weather conditions, such as drought or a prolonged freeze, may reduce production and increase oat prices, while ideal weather conditions can boost yield and bring down the price of oats.

The price of competing grains: The price of corn and other competing grains has some effects on oat prices. For quite some time now, oat prices tend to correlate with the price corn.

Demand and supply report: The USDA reports monthly data on the global production, stocks, trades, and consumption of oats. It is important for an oat trader to monitor these data for clues of demand and supply imbalances, which can affect the prices of oat contracts.

Conclusion

Oats are a very nutritious source of food for both humans and animals. The extracts are used in cosmetics for their skin-soothing effects. Oat futures contracts are traded on the CME.