Forecasts of increased acres, higher production and a bigger carryover would normally produce an outlook for lower prices.
But that’s not necessarily the case for oats.
The fundamentals point to lower prices next year, as farmers are expected to plant more oats in response to good returns, and year-end stocks are expected to rise to near record levels.
But thanks to the activity of large index hedge fund buyers on the Chicago Board of Trade, oat markets could defy the fundamentals in 2007-08.
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“The funds are a huge driver of oats prices right now,” market analyst Randy Strychar told producers attending the annual meeting of the Saskatchewan Oats Development Commission.
“You could end up with a 10 percent increase in acreage and 200,000 tonnes more carryout stocks and still have higher oat prices.”
Index funds hold about 50 percent of the futures positions on the Chicago market and as long as they stay in the market, that will support prices.
At some point they will liquidate their positions in commodities, said Strychar, but to date they’ve been holding steady.
“This is uncharted territory,” said the Vancouver-based analyst, adding the funds are probably worth 30 cents US a bushel in the market right now. “This not an oat driven rally.”
The other factors supporting oat prices include tight corn supplies resulting from increased demand for ethanol, a decline in world coarse grain stocks, supply and quality problems with European oats and a drought in Australia.
Oat prices in Canada are at their second-highest level in 25 years, despite a five percent increase in production in 2006. Strychar said exports this year will be about five percent higher, compared to the long-term average.
Strychar said Chicago oats will probably peak at around $3 US a bu., while the milling cash market will top out around $3.25 a bu. in Manitoba, $3.10 in Saskatchewan and $3 in Alberta.
“We could still see $3 next fall,” he said. “The numbers say no, but the index funds have skewed everything.”
