Manitoba’s oat acreage has plummeted, but the market doesn’t seem to care.
However, analysts think that could change in the winter when buyers begin to see today’s huge stocks dwindle to below-average levels.
“My message to the U.S. millers is ‘boys, you’d better get some oats bought, and get yourselves covered, because you aren’t going to see those prices again soon,’ ” said Prairie Oat Growers Association president Bill Wilton.
“They look at me and say, ‘there’s lot of oats out there.’ “
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Manitoba’s crop insurance agency is reporting a nearly 40 percent decline of acres seeded to oats this year, but that hasn’t led to an oat price rally. The market is labouring under a heavy oversupply of oats from the past two years, with carryout for the 2008-09 crop year expected to be 1.5 million tonnes.
North American millers use only two million tonnes per year, so anything beyond that level of food grade production plus stocks tends to lead to poor prices.
The 2007-08 crop was huge, pushing 2008-09 ending stocks from 600,000 tonnes to almost 1.5 million. However, the oversupply could disappear after Christmas if producers in Manitoba have slashed acreage by 40 percent and Saskatchewan producers have also cut back.
Randy Strychar of OatInsight said oat stocks in 2009-10 should fall to about 600,000 tonnes, which is below the five year average of 968,000 tonnes.
“All this should make for (a) very interesting ’09/’10 crop year if Canadian growers remain relatively tight holders of cash, as they have over the past 10 months,” Strychar said in his Aug. 9 report.
Farmers are suffering this year not because of huge oat acres last year, but because of last year’s large crop. It was smaller than the 2007 crop but large enough to prevent the huge stockpiles from diminishing.
However, 2009 growing conditions are far from perfect, and Wilton is warning millers and buyers not to assume they can count on an abundant harvest.
“If we get an early frost or the weather doesn’t hold, it’ll get a lot tighter,” he said.
Strychar said more oats could be cut as greenfeed because of quality problems and lack of hay in some areas.
Farmers are disappointed with cash prices that have seldom been above $2 per bushel. As well, recent prices of $1.70 per bu. in Saskatchewan and $1.80 per bu. in eastern Manitoba aren’t going to prompt many farmers to boost their oats acreage in 2010, which Wilton said means the market will have to buy the acres next winter and spring.
“Farmers are going to need to see $3 per bu. before they plan for more oats.”
Unfortunately for growers, oat demand for human consumption is inelastic, meaning that once millers’ needs are met, there is no other demand to fill. Any sizable surplus crushes prices.
The worst impact of the 2008 crop price rally on oat demand was to the horse feed market. Race horse feed buyers pay high prices for quality oats, but last year’s $4.50 per bu. prices drove many to look for alternative feeds, and they haven’t returned now that prices have fallen.
“We basically lost that market,” Wilton said.
