Oat buyers’ storage gives cushion to prevent rally

Buyers don’t want to be caught short and be forced to pay higher prices so many have several months worth of supply in storage

Farmers keep hearing that quality oat supplies are getting tighter, but they never see a price rally as they expect.

That’s unlikely to change, said oats trader Lorne Boundy of Paterson Grain, because buyers seldom worry about running out of oats these days.

“A lot of the mills actually built up enough cushion (of supply) that they would never have to live through that again,” said Boundy about processors’ response to the 2013-14 grain transportation crisis, which saw some U.S. Midwestern mills almost shut down because they could not get oats from Western Canada.

“You can’t risk running your mill out.”

With buyers now generally having months worth of supply in hand, there is no need to panic and panics are often what cause rallies.

Oat futures prices have been sliding since June, falling from about US$2.20 per bushel to $1.75 recently. Oats futures have been weaker than those of other cereal grains.

However, cash and Minneapolis area basis bids have counteracted some of that weakness since the beginning of August, revealing the higher value of true milling quality oats.

Even then cash values for farmers have been dropping since June, leaving growers in Manitoba looking at C$2.25 per bushel and Saskatchewan growers at about $2.

The situation is made worse by the slump in feed use of oats in Western Canada.

“This remains a disturbing long term trend for the North American oat market, one that is having a negative impact on Canadian oat plantings and production, both of which are in long term downward trends,” said the Sept. 11 OatInformation weekly oat commentary.

Statistics Canada recently estimated that oats used as feed in Canada dropped by five percent this year.

“Declining feed use is creating a situation that is trending towards Canadian oats becoming a contracted crop,” said the OatInformation report.

“If farmers are unable to find a volume outlet for their feed quality oats, either in commercial feed or on farms, there is no reason to increase or sustain current oat plantings. Unless oat prices begin to trade closer to wheat and barley values, we see little reason for the negative trends to shift.”

Boundy said a big spread has developed between feed and milling oats, revealing the glut of low quality oats held by farmers.

Many growers hope to see cash prices rise above $3 per bushel and have held back from pricing until they see it, but Boundy said they might never see it this crop year.

“Unless you have $6.50 or $7 wheat, that’s not going to happen,” said Boundy.

“Look for the time to sell and don’t hesitate.”

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