The numbers say it should be a bear market for oats. So why is Randy Strychar talking like a bull?
He’s six times burned about getting bearish too early.
“Quite a lot of things have to go wrong” for bearish oat price forecasts to come true, said the Ag Commodity Research oat expert.
“We’ve had six years – two late seedings, two drought years and two poor harvests. We’ve been pretty much whacked each year.”
Statistics Canada came out with seeding intention numbers last week that knocked down oat prices and gave sellers a scare. Overall Canadian oat acres are projected to be up about 20 percent with a 36 percent jump in the all-important eastern Saskatchewan-Manitoba milling oats area.
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Real Tetrault of Emerson Milling in Manitoba’s Red River Valley said the forecast makes sense in his area.
“We’re going to see a large increase in acreage,” said Tetrault.
The reason is price. Oats have often had an unpromising price in the spring, which hasn’t enticed acreage. The string of bad conditions during the summer happened too late to influence acreage, but gave those who did seed and harvest oats a nice surprise if they had not contracted their crop.
Tetrault said farmers are happy to contract at this spring’s high prices.
“In previous years the price was $1.85 (per bushel). This year it’s $2.85 and they’re contracting.”
So much so that his company has now signed up about half of the oats it needs for next year, compared to the usual 10 percent at this time of year.
While farmers flock to contract new-crop oats, Strychar is in the odd position of urging farmers not to commit too much. In recent years he urged them to sign contracts for a good portion of their crop.
But this year he thinks farmers should not go beyond about 30 percent. He sees more bullish than bearish potential, even though the Statistics Canada number appears large enough to push down prices.
Not only does over contracting cut off the potential for better price, it exposes the producer to risk if he doesn’t bin a big enough crop.
For the 2007-08 crop to assume an overly large size, a string of fortunate events need to occur, he said: seeding must occur soon; growing conditions must be good; and harvest weather must be good.
Those have not been safe assumptions since 2000.
“Until we get it in the bin, it’s a dicey market,” Strychar said.
Even if the oat crop works out, prices could still rise in the autumn if something befalls either the U.S. corn crop or another significant world coarse grain crop.
“You could drag the whole corn complex up. You could have a bumper crop in Canada and you might lose to corn (in terms of the spread narrowing), but you’ll still creep up,” said Strychar.
“The numbers are bearish, but it’s hard to go to the bank on that.”
Already some weather factors don’t favour easy seeding of oats. Eastern Saskatchewan has wet soil and rain is in the forecast.
Commodity funds also offer another reason to anticipate a stronger market than suggested by the big acreage numbers. With speculative money still happy to sit in oats, price levels might be firmer.
Anything that shakes the market’s confidence in the size of the oat crop could deal farmers good prices.
“We’ve got no room for error,” said Strychar. “This thing could turn on a dime – fast.”
