Farmers are receiving false signals about oats, and that’s likely to leave the North American industry short of the crucial crop, says analyst Randy Strychar.
“Right now he’s (farmer) being told, ‘oats prices suck. Don’t grow any,’ ” Strychar said about new crop oat prices versus new crop wheat prices.
“The (supply and demand fundamentals) are telling me the exact opposite.”
He said neither futures prices nor basis levels are reflecting the tight oat supply. End users could regret their low spring new crop bids when they find they don’t have enough supply next fall and winter.
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He expects oats stocks at the end of the current crop year will be a tight 535,000 tonnes, down from 1.03 million at the end of 2013-14. That is lower than the Agricultue Canada forecast of 825,000 tonnes and he thinks he might have to tighten his ending stocks forcast even more given the rate of exports to date.
He thinks oat ending stocks in 2015-16 won’t improve much, even if farmers seed 3.2 million acres, which is a 15 percent increase on last year, and harvest a good crop, he added.
“I’m friendly to outright bullish.”
Recent oat prices have lagged compared to wheat prices, which changes a crucial component of the farmer’s profitability calculations. A relative weakening of oats compared to wheat will tend to push farmers to increase wheat acres and reduce oats acres if they are considering wheat, oats or barley for the cereals component of their rotation.
That’s what has been happening for the last month, Strychar said.
“We’re 50 cents (per bushel) away” from new crop prices that would generate more than 3.2 million acres of crop, Strychar said.
Present futures prices have oats at less than US$3 per bu. throughout the 2015-16 marketing year.
Oats have unique market dynamics, with the crop almost all grown in one region — Western Canada — and processed in one region — Minneapolis-Chicago — with a handful of millers and two big multinational processors dominating.
The vagaries of those regions and the particular situations of those players often have outsized effects.
For example, in the winter of 2013-14 oats from the Canadian Prairies could not get through the rail system to the Minneapolis area. The result was sky-high futures prices and low prairie cash prices.
Today’s relatively weak forward oat prices appear to be the result of Minneapolis millers and processors re-filling their local storage and not needing to buy more crop.
However, Strychar thinks buyers should be worrying about the potential tight stocks next winter.
“No one in the U.S. seems to be too concerned about it,” said Strychar.
“I think they’re kind of getting fooled.… I’m just astounded by the lack of urgency.”
