Declining oat acreage and production will likely cause prices to rally against other crop prices in 2013-14, says oat analyst Randy Strychar.
Unfortunately, there is a strong possibility all crop prices will be lower in the coming crop year, so oat prices will likely be lower than the current year even with an improvement relative to other crops.
Strychar, owner of OatInsight.com, told the Saskatchewan Oat Development Commission meeting at Crop Production Week in Saskatoon that growers should lock in a new crop price now on a portion of their expected production, despite what will likely be a developing shortage of the crop this year.
He also advised selling old crop at today’s prices, which are still strong from a historical viewpoint, although down significantly from just a month ago.
“Markets turn real fast. Look at prices Dec. 1 and where they are today. Just like that, they are gone,” he said, referring to the 54 cent per bushel decline in oat futures since the start of December.
The mindset of crop markets generally switched in December from a concentration on tight old crop supply to a focus on the potential of bumper crops in South America and a rebound in production in the United States next summer if the drought does not linger into the growing season.
Strychar thinks there is a strong risk that U.S. corn prices will fall below $5 per bu. from current levels of slightly less than $7.
Strychar said there might be one more bounce in the old crop market, possibly triggered by the U.S. Department of Agriculture’s supply and demand reports due Friday.
The January reports have a history of surprising the market and triggering strong price movements. Strychar said farmers should capitalize on the surprise if it is bullish because grain traders will likely quickly revert to their concentration on the potential for bumper harvests in Brazil and Argentina and slow U.S. corn exports.
“You may get one last kick at the cat, don’t waste it,” he said.
“If this market does rally, unless it is backed by substantial U.S. corn and wheat exports, it is not going to be in place for a long time.”
Strychar expects that Canadian oat stocks at the end of the current crop year will fall to 626,000 tonnes and drop further to 410,000 at the end of 2013-14. That is well below the five-year average of 1.046 million tonnes.
Oat buyers will eventually become nervous and be forced to make oats a more attractive crop to grow to cover demand that has no substitute.
“To my knowledge, you cannot put a barley in a Cheerio … you don’t want to put barley in a performance horse,” he said.
For that reason, he thinks oats are a good bet to seed this spring because they might rally later in 2013-14 while there is a serious risk that cereal and canola prices could be a major disappointment.