Oat acreage and production are expected to drop sharply in 2008, and for market analyst Randy Strychar, that sends a clear message.
It’s a good time to plant oats.
“If I was a grower I’d seed oats this year, at least as much as I did last year,” he told producers attending the annual meeting of the Saskatchewan Oat Development Commission, which was held during Crop Production Week in Saskatoon.
“I guess I like to swim against the stream.”
Harvested oat acreage is expected to drop by at least 19 percent in 2008.
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As a result, Strychar is forecasting production will fall by at least 900,000 tonnes from last year’s 4.7 million tonnes (a 27 year high) to around 3.8 million tonnes.
The big drop in acreage reflects the fact that returns from oats haven’t kept pace with other crops such as canola and wheat.
“At this time last year oats was No. 3 among crops in terms of returns per acre for Saskatchewan farmers,” Strychar said in an interview after his presentation.
“Now it’s No. 2 or 3 from the bottom.”
However, that should change as the new crop year progresses, he said.
Depending on weather, the 2008 oat crop will produce prices from $2.75 to $3.70 per bushel in Manitoba and $2.50 to $3.45 in Saskatchewan and Alberta.
Prices are traditionally higher in Manitoba due to proximity to the U.S. market.
Prices are now hovering around $3.25 a bu. (basis Manitoba).
Stocks are at burdensome levels, with the carryout as of July 31, 2008, expected to be around 900,000 tonnes, up 73 percent from a year earlier. Demand remains stagnant.
The expected drop in production should boost new crop prices in 2008, and reduce the revenue gap between oats and other crops.
However, Strychar cautioned that understanding the fundamentals of supply and demand doesn’t really suffice when it comes to forecasting the oat market.
Other factors, such as hedge funds, corn prices, crude oil prices and exchange rates, are the key ones to watch.
“Tell me what the funds are going to do and I’ll tell you what the price is going to do.”
Strychar said there are lots of reasons to plant oats this year: production will decline; prices will rise relative to other crops; input costs are low; marketing is simple; forward contracts enable producers to lock in a price for 90 percent of their crop and domestic commercial oat demand will remain unchanged at around 2.4 million tonnes.
“Things are actually pretty good for oat producers,” he said.
“We have a 27 year high in production last year, but prices are higher than last year. You don’t see that very often.”
