PORTAGE LA PRAIRIE, Man. — Why should Edgar Scheurer grow oats?
He can grow grain corn and a host of other crops at his farm near Dugald, Man., for better net returns. Other crops use much less bin space and cost less to transport.
And other crops have safer futures contracts and more attractive contract offers from grain companies.
“If I don’t see better prices this fall, oats is out of my rotation,” Scheurer said in an interview during the Manitoba Oat Growers Association summer meeting.
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“It’s not a pretty crop to grow.”
Oat growers are frustrated by a host of pricing problems with the crop that leave it an unpopular choice with farmers.
The 2012-13 carryout will be the smallest in a decade, but its price lags those of other crops.
Farmers have been burned by delivery contracts in the past when bad weather hit and left them short, and the Chicago oat contract has been so wildly and unjustifiably volatile that many farmers don’t believe they can rely on it.
The crop is used for heart-healthy food products like Cheerios, Quaker oatmeal and granola bars, yet it is priced like a feed grain crop.
In central Saskatchewan, milling oats are presently priced about $20 per tonne lower than feed barley.
All these problems add up to oats slipping off many Manitoba farmers’ cropping lists, and it’s a problem the industry doesn’t yet know how to solve.
“We’ve got to show farmers the value of the crop in the price they get,” said MOGA president Bill Wilton in an interview.
After a winter of poor futures prices for oats, which convinced many farmers not to plant the crop this spring, farmers who did seed the crop were taken on a stomach-churning ride from late-May to June.
Prices plunged from $3.50 per bushel in the Chicago December contract to $2.80 in one week, then bottomed at $2.70 in mid-June before entirely retracing the sell-off by the end of the month.
Oats have not followed corn higher and ended up at $3.80 by July 16.
The futures slide was caused by commodity funds bailing out of positions en masse. With such low liquidity in the oat contract and no one to take the other side of the funds’ trade, prices fell off a cliff.
That kind of futures market volatility unsettled Scheurer and makes him skeptical of the value of the contract.
“As soon as the funds liquidate again, it’ll drop back down,” he said, explaining his lack of excitement about the present rally.
Farmers weren’t the only ones stunned by the bottom dropping out of the oat futures market.
Richardson Pioneer oat trader Brenda Anderson said events such as the fund sell-off don’t panic commercial users, but the severity of the short-term aberration caught them off guard.
“Some of us started buying too early because we didn’t think the funds would take us down 85 cents a bushel,” she said with a wry laugh.
“You know it will correct. You just don’t know how quickly.”
Keith Ballard, oat procurement manager for Quaker Oats, said in an interview that sudden slumps or surges in oat futures can be alarming, but commercial users have learned to have strong stomachs.
“You just have to believe in the futures market and that supply and demand will dictate prices,” said Ballard, who attended the MOGA meeting.
“As a buyer, you just have to believe in your pricing mechanism.”
Ballard and Anderson said their companies still use the Chicago oat futures contract, although some companies have backed away from it.
