Poorly performing oat prices this crop year might be setting up high performing oat prices for next crop year.
Analysts and oat growers say farmers show no signs of increasing oats acreage to levels needed to take the pressure off buyers.
“I don’t get the sense that there’s a rush to plant more oats,” said Winnipeg area farmer Bill Wilton, president of the Prairie Oat Growers Association.
“There are some pretty good looking alternatives.”
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New crop prices are high for wheat, which is easy to grow and market, and canola, which is easy to market. So farmers will need better oat prices than are now available if the market wants to increase acreage by the required 10 percent.
Oat prices are still high historically but look poor compared to other crops.
All crops fell in value in the recent slump, but most have recovered better than oats.
May Chicago oat futures hit a peak of $4.30 per bushel in February before falling to $3.13 and then recovering by March 25 to $3.50.
The slump saw a 28 percent drop in oat prices, compared to a 20 percent drop in corn.
Corn is the price pacesetter for oats because each is priced as a feed grain. That means a weaker performance by oats shows the crop is relatively underpriced.
Futures for spring wheat, the weakest of the big three North American crops, fell by 25 percent, again highlighting oats’ relatively poor performance.
Wheat prices are important because it is a cereal that competes with oats for acreage and is easier to market.
Canola fell by 16 percent in the recent downturn, keeping it more popular with most farmers.
Wilton said committed oat growers in Manitoba’s Red River Valley, which he recently met with, do not plan to grow more oats.
Soybeans are an option, and they will increase those acres if they can.
Farmers further west are more likely to favour spring wheat.
“They understand growing wheat and given the choice they’ll grow it wall to wall,” said Wilton.
“Especially with the prices they can lock in with some of the (Canadian Wheat Board) programs, it looks pretty attractive.”
OatInsight analyst Randy Strychar thinks prices won’t stay low for long.
He predicts oat futures will surge to $3.75 per bu. in coming weeks, which would provide a 50 percent retracement of the recent decline that is typical for such a large move.
He also thinks the relative price strength of oats will grow.
“In our opinion, oat prices are undervalued and are holding very little weather premium given the extremely wet soil conditions across major oat production regions in the eastern Canadian Prairies and potential seeding delays,” said Strychar in his March 27Weekend Oat Commentary.
A smaller than expected corn number in the U.S. Department of Agriculture planting intentions report March 31 would also support corn and oats prices
“We remain bullish on oat prices given the tight cash fundamentals for corn and particularly for oats.”
New crop oat prices are substantially higher than old crop prices, with December at a 27 cent per bu. premium to May.
As well, new crop futures declined much less than old crop prices, which most observers assume should preserve oat acreage.
Strychar thinks a 10 percent increase in oat acres is unlikely, even though it is a widespread expectation in the oat industry. As a result, Strychar is urging commercial oat buyers to buy new crop oat futures now.
“Commercials that have not done so should look very closely at pricing oat basis contracts even at current price levels,” he said.
“Assuming no further deterioration in the Japanese or Middle Eastern situations, these may be some of the lowest oat prices we see for quite some time.”
Wilton said farmers need a reason to plant more oats this spring, and the best reason would be higher prices.
However, that price signal might not come before farmers plant their crops. Most oat buyers are well stocked and weather worries are unlikely to hit oats as hard as other crops.
“It’s going to take something to get this market excited,” said Wilton.
“There just really isn’t anything to get the market excited.”
