Market conditions for oats grim: analyst

Ending stocks high Prices are dropping and growers will have a tough time moving crop

What a difference a year makes.


When oat industry analyst Randy Strychar stood in front of Saskatchewan oat producers in January 2013 to offer his annual market outlook, he suggested that the crop could be one of few bright spots in an otherwise gloomy global market, at least relative to other Canadian cereal crops.


Fast forward 12 months and the optimism surrounding oats has definitely faded.


Canadian oats hit near record cash prices early in the 2012-13 crop year, Strychar said last week during a presentation at CropSphere.


Since then, however, cash prices have dropped by roughly one-third, a decline of $1.32 a bushel.


On top of that, domestic ending stocks as of July 31, 2014, are expected to be 1.3 to 1.5 million tonnes, Strychar said, which is well above the five-year average of one million tonnes.


Combine that with good oat production in Mexico and Australia, a weak U.S. horse market and ongoing domestic rail problems that show no signs of improving, and Canadian farmers could be sitting on a big pile of oats this year.


“It’s going to be a challenge for us to try to move what could possibly be record ending stocks as of July 31, 2014,” said Strychar, a Vancouver based grain trader and oat market analyst.


Returns for oats show virtually no signs of improving in 2014, he added.


“We’re still sitting second from the bottom (in crop planning budgets), so it’s not encouraging to acres this spring.”


Last year’s massive crop is one the key factors casting a shadow over the Canadian oat market.


Western Canadian yields were 20 to 25 bu. above the long-term average in most areas.


“I would say, from an oats perspective, it was the yield of lifetime,” Strychar said.


“It’s a record high 92 bu. per acre versus an average of 72, so there were huge yields.”


Those stocks will weigh heavy on domestic markets for months.


Strychar asked for a show of hands last week from producers who intended to plant the crop again this year and was surprised by the response.


“I was stunned … by the number of hands that I saw go up in the room,” he said.


“You’ve got one of the largest oat crops you’ve had in years, you’ve got ending stocks that are heading towards the record high and we’ve got no way to get that crop to the marketplace.… That tells me don’t grow oats.”


The prospect of Canada signing a trade agreement with the European Union does hold hope for the Canadian oat industry.


“It could be … huge… if we can get that implemented pretty quickly,” Strychar said.


“Right now, if you want to put Canadian oats into Europe, you’re looking at an 89 Euros ($132) per metric tonne import tariff,” he said, which translates into more than $2 per bu.