When Emerson Milling president Real Tetrault looks at the fields near his southern Manitoba oat mill, he finds perfection.
“We’re way ahead of last year,” said Tetrault.
“It looks great here. It couldn’t be any better. We got them in early, there have been ample rains, we’ve had cool weather and sunshine. That’s perfect. It’s just great.”
But in the vexing mathematics of the marketplace, those perfect growing conditions are adding up to consistently falling prices.
Statcom Ltd. oats analyst Randy Strychar said prices for oats are likely to keep falling, and growers will have to work hard just to get rid of old-crop oats.
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“Sell, sell, sell and sell,” is the marketing strategy Strychar recommends for any grower who still has 2002 oats in the bin.
“There is no rational reason why a grower should hold on to his crop. None.”
Oat prices have plunged since winter, but old-crop oat prices are still slightly above November new-crop prices, with some offers at 25 cents per bushel above new-crop levels. Producers with crop to sell should grab that small premium while it lasts.
“Whatever premium we’ve got will erode,” said Strychar.
Many oat growers expected a rich and rewarding market this spring and summer because of last year’s small and poor quality prairie crop. But high prices early in the crop year sent some U.S. buyers into the arms of Scandinavian sellers. That cut demand for Canadian oats.
“That killed the price here,” said Tetrault.
Farmers with oats might be unhappy with today’s prices, but Tetrault said he also isn’t pleased. His company, fearing short summer supplies and rising prices, contracted oats for summer delivery at last winter’s prices. Now he is receiving oats at above the market price and finding weak demand from American buyers.
Strychar said weather problems could affect oat prices, but noticeable price gains would require at least a month of drought.
“We could go three weeks without rain before we’d even blink,” said Strychar.
Tetrault has filled his need for oats until August, and Strychar said that is a common situation with prairie millers. Farmers who need to sell old-crop oats may have trouble finding willing buyers.
“It’s hard to get them to buy anything when they see a big crop coming down the road,” said Strychar.
“They’ll just drag this thing out. If they have to pay a premium, they’ll pop up and buy small quantities, then head for the hills.”
Taking a gamble
Strychar said oats growers have avoided contracts for this fall’s harvest, but that is dangerous.
Offers for November of $1.95 per bu. are well above where prices will fall if good growing conditions continue.
“My guess is that it will fall to $1.60,” said Strychar.
Farmers should contract 15-30 percent of their expected production in order to avoid a likely price slump, he said. Many growers are leery of contracts this year after being stung for the past two years – when many could not meet their delivery obligations – but Strychar said not contracting a portion of this year’s production is just rolling the dice.
“Take a chart. Draw a line. You can see where we’re going,” said Strychar.
