Farmers used to selling oats as a premium product could face a nasty surprise this year.
Not only is that premium diminishing, but also oats could become cheaper per bushel than corn.
“No matter what corn does (this coming year), oats will lose to it,” said Ag Commodity Research analyst Randy Strychar.
Since mid-2001 Canadian oats have generally enjoyed a hefty premium to corn, the feedgrain market’s mainstay.
In 2001-02, the worst year of the recent drought in Western Canada, the premium briefly surpassed $75, but premiums of $40 to $50 were common through this decade, except for a while in 2004.
Read Also
Poilievre promises EV action and calls for canola compensation
Conservative leader Pierre Poilievre promises EV action and calls for canola compensation
But recently, the oats premium has been collapsing, now floating at around $20 per tonne. Strychar said that trend will almost certainly continue through the year as the market reacts to short supplies of corn and bigger supplies of oats.
This won’t be a disaster for oat growers, who will be receiving historically good prices and who could see nominal values rise.
“Oats can still climb, per se, but it will lag corn because hedges will keep coming into the marketplace,” said Strychar. As farmers sell their crops, buyers and processors will lock in prices by selling futures contracts, putting pressure on oats prices.
Analysts believe Canadian farmers will increase their oats acreage by 10 percent this coming year. If they do and U.S. acreage stays stable and the Scandinavian countries don’t abandon the crop, there could be more oats hitting the North American market than demand can consume.
That may mean that the crop needs to buy its way into buyers’ hearts by eliminating the premium and offering a discount.
That is not all bad, Strychar said.
High oat prices, caused by two serious drought years and three other small crops, stopped many horse and other livestock feeders from using the crop.
A discount to corn might entice some horse feeders back to oats.
“If you sat there for a year (with prices below corn), maybe, you’d get some of the feed (demand) back,” said Strychar.
Many horse feeders switched to pelletized feed during the early 2000s. Luring them back won’t be easy.
Oats have not always enjoyed a premium over corn.
Through most of the 1990s, oats stayed within a closer range to corn, sometimes at a premium and sometimes at a discount. They were judged to be roughly equivalent feeds.
Now that supply and demand have shifted to favour corn prices, Canadian oat growers may need to reassess their assumptions.
