The oat situation is once again bullish, but the market isn’t doing much to recognize that fact.
As a result, some advisers and analysts are suggesting that farmers give the market time to catch up to reality.
“Make plans to be moving other commodities,” said Brian Voth of Agri-Trend Marketing, repeating advice he and his colleagues have been offering for months.
That’s also the view of Oatinformation.com analyst Randy Strychar.
“Farmers have storage space all over the place,” said Strychar.
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“One side is going to blink.”
The oat market has been stuck with twisted market signals for years: futures prices diverging greatly from underlying cash market values and cash market values differ sharply between the Minneapolis milling zone and the western Canadian production zone.
Without good futures prices to encourage farmers to grow enough of the crop, farmers have put in fewer acres than what would keep the market comfortable. However, chronically tight supplies of oats haven’t yet burned enough futures market investors or commercial users to correct the signals.
Unique logistical problems between Minneapolis and Western Canada mean real oats often can’t get to the real demand, so milling prices can roar up while prairie prices can slump down.
Statistics Canada estimated Aug. 21 that farmers will produce 14 percent more oats this year than last year, but that follows a small 2014 crop, so the present situation doesn’t change the prospect for razor-thin stocks.
“The report was bullish for oats,” said Paterson Grain oat trader Lorne Boundy.
A mystery hanging over the market is how much of the oat crop will actually be available for the usually premium milling market. The western drought, poor pastures and low hay harvest and the relatively high prices for other feed-grains are encouraging farmers to feed oats to animals rather than keep them in the bin for processors of Cheerios, granola bars and oatmeal.
“There’s a big question how much of the oat crop has already been cut for greenfeed,” said Voth.
“It will have been higher than normal.”
Strychar said oat prices on the Prairies now reflect feedgrain values, so many farmers will have options other than elevators and mills.
“Oat prices in Western Canada are one of the cheaper feed ingredients, so it’s unlikely that feeding (of oats to cattle) is going to drop significantly,” said Strychar.
It sets up oats for a rally at some point when the market recognizes the shortness of the crop, but that might require farmers to bin the crop and wait for reality to strike.
Voth said commercial buyers in southern Manitoba have offered $3.30 bids when they need the physical grain for a sale they have already made, which is far beyond what futures are offering.
Strychar said cash market bids around Minneapolis are dozens of cents per bushel over futures prices, but so far the commercial buyers haven’t been willing to take on the funds and force futures prices higher.
However, he doesn’t doubt it will occur at some point, which should lead to prairie bids rising and drawing stocks out of storage.
“There’s a 50 cent gap between what buyers will pay and what farmers are willing to take,” said Strychar.
Voth said oat stocks will stay tight.
“Even with this (increased production in 2015), we’re not going to build stocks in Canada.”
