Oats might have ended their recent rally, but analysts are not expecting them to fall back into the gutter.
Oat supplies are so short that another rally is likely, although not for a few months.
“We’re closer to the record low than the average and that’s only taking half the (possible) production loss into account,” said Randy Strychar of Oatinformation.com, the oats market analytical firm.
“The seeding numbers in 2017 are absolutely critical.”
Strychar said acreage needs to expand not just by a marginal amount, such as five percent, but by 20 to 30 percent.
Read Also
Food vs. fuel debate simmers in the background
The OECD/FAO are forecasting that 27% of the global cereals crop will go to biofuels and other industrial purposes by 2034.
“To do that you’re going to need to keep oat prices up at 50 percent of wheat values — or better.”
The recently stalled oat futures rally has been notable not just for the nearby gains of about 60 cents per bushel, to around $2.30 per bu. from $1.70 in September, but also in rising toward highs that haven’t been seen since 2014.
If the oat futures can break through the $2.50 area, another leg up might be possible.
Strychar said an independent oats market rally shouldn’t be expected right away. The rally that began in September was driven by funds covering shorts, so it was a temporary phenomenon.
Then the harvest problems in Western Canada drove buyers to scramble for nearby supplies.
At this point, most buyers are covered for the next few months, Strychar said, so they won’t be scrambling for nearby supplies.
The short-covering rally has eliminated most of the funds’ net short position, so that trigger has already been pulled.
“You won’t see this go through the roof,” said Strychar.
Broker Errol Anderson of ProMarket said he also doubts the rally can re-ignite soon.
“For us, this is a pricing opportunity,” said Anderson.
While oat supplies are likely to be extremely tight by the end of 2016-17, oat processors carry many months of supplies now after suffering greatly in the 2013-14 grain transportation crisis.
That’s why Strychar is thinking spring is the likeliest time for another oat rally.
“The rubber’s going to hit the road. I just don’t know if it’s January-February or April-May or whenever.”
