Expected increase in oat acres could see drop in prices

A leading oat market analyst says Canadian oat plantings could increase by five to 10 percent this year, a scenario that would almost certainly result in higher ending stocks and lower oat prices.

Analyst Randy Strychar said per-acre returns on oats remain relatively strong compared to per-acre returns on spring wheat.

On the surface, that might sound like good news for oat growers. But in reality, it will likely mean larger Canadian oat plantings in 2020, larger supplies and weaker prices in the short-term for both old-crop and new-crop supplies.

Strychar said ending oat stocks for the 2019-20 crop year are forecast to come in at around 718,000 tonnes, which is slightly above average.

A five percent increase in spring plantings this year could push 2020-21 ending stocks as high as 800,000 tonnes, he added.

A 10 percent increase could result in ending stocks as high as a million tonnes, which could have a significant impact on prices.

“The 2019 oat production numbers in Canada were the fourth highest in the last 40 years … so we’ve got a really, really big oat crop that we’re dealing with this year, much bigger than we anticipated,” said Strychar, who spoke Jan. 14 at the Saskatchewan Oat Development Commission’s annual general meeting during CropSphere in Saskatoon.

“Canadian oat supplies are at an 11-year high right now, so that’s a combination of carry-in stocks and what we produced for the 2019-20 crop year.”

“As an analyst (who’s been) in the industry for 40 years, that alone tells me that we’re going to have a problem trying to get prices back up to the levels we’ve seen in the past, certainly compared to 2018-19.”

Producers who attended the SaskOats annual meeting heard that market development work is helping to expand demand for Canadian oats abroad.

Oat exports to Mexico increased to nearly 180,000 tonnes in 2018-19, up significantly from the five-year average of 42,000.

That increase was the result of a market development campaign that has the potential to push Canadian exports to Mexico above the 200,000 tonne per year level.

Similar market development work is aimed at increasing Canadian exports to Japan, China and other Asian markets, although that work is in its early stages and has yet to produce significant results.

Strychar said there is considerable potential to increase export sales to Asia, where interest in oats and processed oat products continues to grow.

“The markets that I’m really watching as an analyst are Southeast Asia and subcontinent India,” he said.

“These are the growth markets globally. The tonnages (currently exported) are small but … usage is massive and you’ve got to remember that with over a billion people in China alone, you’ve only got to move (per capita usage) a little bit to move the numbers significantly on the oat usage side.”

Right now, oat exports account for about 50 percent of overall Canadian oat disappearance, compared with 23 percent that’s used for domestic milling, 24 percent used for feed and three percent for seed.

On the export side, about 71 percent of what Canada ships each year goes to U.S. mills, compared to 18 percent that’s sent to the U.S. horse market and 10 percent that’s shipped abroad to countries other than the United States.

As far as domestic prices are concerned, Strychar suggested that oat ending stocks of 800,000 tonnes are typically enough to limit price increases.

When Manitoba oat prices are valued at 50 percent of spring wheat prices or more, farmers will typically be enticed to increase oat plantings, based on higher potential per-acre returns.

In December, Manitoba oat values were calculated at 56 percent of spring wheat values, suggesting that 2020 oat plantings could increase by five percent or more, barring any significant changes in wheat or oat values over the next few months.

Saskatchewan oats typically trade for roughly 50 cents per bushel less than Manitoba oats.

Over the past 12 months, Manitoba cash prices have ranged from a high of around $4 to a low of around $3.25.

Strychar said 2020 acreage will be a key factor to watch in terms of old-crop and new-crop values.

“If we’re looking at ending stocks of a million tonnes, it’s going to be really, really difficult to get price traction to the upside with those types of ending stock numbers.”

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