Has the oat market finally bottomed?
Two influential market analysts think it has.
“I’m willing to call a bottom,” said Randy Strychar of Ag Commodity Research.
“At least we’re very close to one. I’m more optimistic than I’ve been for the last three months.”
Analyst David Drozd of Ag-Chieve has a similar view.
“We’ve had a good runup. We’ve had a good run down,” said Drozd.
“Things can change awfully fast.”
That would be good for oat growers because, of all the main crops traded on futures markets, oats has had the most remorseless fall in prices, from the July peak of $4.70 US per bushel to about $2.15 in mid-December.
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Oats hit $2 per bu. in early December.
All crop prices have fallen, but the plunge was more extreme for oats because there are underlying weak fundamentals.
Canadian farmers grew a large crop of quality oats. Processors have huge stockpiles and no need to chase supply. Ending stocks for 2008-09 are expected to be the highest for 27 years, at 1.2 million tonnes.
So, while canola futures prices fell about 41 percent and spring wheat fell 36 percent, oats dropped more, by 67 percent to early December.
Plenty of stock
Strychar urged growers not to expect oats to rally by itself, because there are large in-store stocks in Minneapolis and Duluth that no commercial buyer will scramble to buy this winter.
“These oats that are in stock in the United States will step in front of Canadian growers trying to sell (this winter),” said Strychar.
He believes farmers have no negotiating power with commercial buyers. A delivery strike is unlikely to force better basis levels and push up cash prices.
“Understand that you’re looking at markets that you don’t hold the hammer for,” said Strychar.
But Drozd said farmers, who are already suffering with terrible basis levels, will not help themselves by delivering into the system.
“When you have a poor basis, it’s a signal not to be delivering grain,” said Drozd.
“If farmers want to continue delivering oats at this level, the basis won’t improve. The only way you can change that is to keep the bin door closed for a bit, until the basis improves and you get a better cash price.
“Between now and March, if you can keep old crop from the market and the futures rally, you should have a pretty good price spread.”
Stychar said if farmers don’t need crop sales to pay bills this winter, they could take a chance on a late winter rally.
“If growers have cash right now, they need to look as far forward as possible, and if you’re a gambler, hang on and you might get a nice top-up, maybe 20 or 25 cents a bu.”
With heavy cost-of-carry in the market, farmers could wait until late winter or spring in hopes of a rally and then lock in prices for far-out futures months, which provides a good carry premium.
Both Drozd and Strychar said that while the large stock of oats is terrible for growers, the overall crop supply and demand situation is excellent. World grain stocks are low and could be ignited by production problems anywhere.
“We are only one crop year away from a disaster,” said Strychar.
“Things don’t look so bad.”
For the winter, Strychar estimated prairie mill prices ranging from $1.75 to $2.75 per bu. for Manitoba, $1.60 to $2.55 for Saskatchewan and $1.60 to $2.55 for Alberta.
