Oat growers looking to lock in a price for their new crop should act now, because millers are already filling their quotas.
“I just got off the phone with one of the mills and they’ve completely filled their new crop demand,” Randy Strychar, an oat market specialist with Ag Commodity Research, said last week.
That lack of demand for new crop, reduced because millers have many tonnes of old crop in storage, has convinced Strychar that oats hit its peak two weeks ago.
“A couple of the bigger U.S. companies have been stockpiling (the 2007 crop) into every nook and cranny they can find,” Strychar said. “Technically, this looks like a toppy market. Unless we’ve got some major problems in the spring, we’ve pretty much reached the end of this (runup for oats.)”
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From the beginning of 2008 to early March, oats had a spectacular run, gaining more than $1 a bushel.
The September 2008 oat contract on the Chicago Board of Trade reached a high of $4.37 US a bu. in early March, bolting from a price of $3 bu. in early January. The futures rally dragged cash prices higher in Canada, with prices jumping past the $4 Cdn mark, two weeks ago at Can-Oat in Portage la Prairie, Man.
However, a correction last week dragged cash and futures back down to earth. Prices for most oat contracts on the CBOT were down 50 cents US last week, ending the week in the $3.40 to $3.70 a bu. range.
The prices are still strong, compared to historical levels, so Strychar recommends that grower’s lock in a percentage of their new crop now.
“It’s hard not to lock something in at these numbers,” he said.
The rise in oats was entirely fund driven, Strychar said, as the fundamentals should have dragged the market down, or at least sideways.
With the funds backing away from oats and all commodities last week, it’s not clear to him who is going to jump in and push futures higher.
He added that in the cash market millers will continue to buy, but it’s worrying that several are telling him they have more than enough old crop. Last year’s North American oat crop was the largest in 27 years, with six million tonnes harvested in Canada and the U.S., compared to 5.2 million tonnes in 2006-07.
One miller told Strychar its supply should last till Christmas.
“They’ve got enough oats, probably, to last them to January of next year … maybe farther,” he said.
A Manitoba miller agrees with Strychar’s assessment that processor stockpiles are building, but he believes growing demand should prop up prices.
“General Mills have been stockpiling quite a bit,” said Real Tetrault, president of Emerson Milling in Manitoba. “(But) the demand will still be there. Let’s not blow this out of proportion.”
Tetrault said most millers, large and small, are selling more oats compared to previous years. He pointed to a General Mills quarterly report released March 19. The food-processing giant reported 12 percent sales growth in its third quarter, compared to the same period last year.
The recent decline in oats, said Tetrault, is good news. Before the recent correction oats was overpriced and becoming less attractive for the consumer market.
“Oats should not be where it was priced for the last couple of months,” he said. “Four dollar oats is not realistic, when corn’s at five bucks.”
