When oat prices plunged during the fall and early winter, farmers went on strike.
They shut their bin doors and refused to sell.
But new and old crop prices are now recovering, increasing from March’s futures prices of less than $2 US per bushel to more than $2.50. New crop miller contracts have been on offer for $2.30 to $2.69 Cdn in recent days.
However, that doesn’t necessarily mean farmers will rush out now to sell. Two factors are likely to stand in the way.
First is the timing of this rally.
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“Farmers are out in the field and might not even know about this,” said Randy Strychar of Oat Insight.
“Last year the same thing happened.”
Farmers in Manitoba’s Red River Valley are preoccupied with late-seeding problems while producers in north-central Alberta and western Saskatchewan are worried about dry conditions. They are likely focused on production concerns rather than locking up new crop prices or moving old crop.
The other disincentive to pricing now is the sense that oat price prospects are looking up, and farmers feel they’ve been able to force a recovery from the unacceptable lows of the winter.
“Farmers are finally getting it, that they can have a small effect on price by holding back supply,” said Bill Wilton, a Winnipeg area farmer and president of the Prairie Oat Growers Association.
He said he and many farmers he knows refused to sell when oats fell below $2, and they’re not keen to rush out now to price crop because weather problems and reduced acreage mean prices are likely to climb further.
“As the supply gets shortened up, the price should get better and the market will pay farmers for holding the crop,” said Wilton.
Strychar said the price could keep increasing because money has been pouring back into the market, but it’s dangerous to assume there are fundamental reasons for the rally, which means it could end as suddenly as it has risen.
“We’ve got oats, oats and oats,” said Strychar about the stockpiles of oats, which he forecast at 1.3 million to 1.4 million tonnes at the end of this crop year, well above the previous record of 1.07 million tonnes.
It’s equivalent to more than half a year’s supply to the North American milling and processing industry, which uses a little over two million tonnes per year.
He also said acreage has not dropped as much as many analysts like him expected, so instead of supply shrinking in the new crop year, it could swell and create another cold winter of low prices.
“I sure hope these guys realize that just because the price is rising doesn’t mean there’s demand to fill it.”
Strychar said the reason for the surge in oats prices has little to do with oat supply and demand. Soybean prices began rallying this spring, pulling along corn, and corn has dragged up oats. The rally has inspired the commodity hedge funds to jump back into the market, driving it higher.
When a huge commodity fund moves a tiny fraction of its money into a tiny market like oats, the effect can be dramatic.
“When you put a quarter of a percent of a billion dollars into the Chicago oat pit, it’s a lot of money,” Strychar said.
“Last week it was all corn and funds (causing the rally). This is kind of a miracle for the oat market.”
If the other crops continue to rally, oats will probably go along for the ride, Strychar said. If corn hits $5 per bu., oats will reach around $3 in futures prices.
However, oats will continue to have an Achilles heel because of its terrible fundamental situation, so farmers should consider locking in prices for at least a portion of their crop now, he said.
“This is a freebie for the growers,” Strychar said.
