Normally, the weakest oat price of the marketing year is hit around the start of December.
But that won’t be the case this year because Chicago oats futures have rallied strongly this fall, up more than 60 cents US per bushel from the September low.
That leaves growers with a murky winter marketing season, market watchers say. But one leading analyst believes the market should get much better by next summer and carry through 2010-11.
“We’re going to transition some time this year … from a bear market into a bull market,” said Randy Strychar of OatInsight, the oat industry analysis firm.
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“We’re less than a year away from some pretty darned tight (supply and demand fundamentals).”
Strychar said net returns for oats versus other crops now are unlikely to draw much new acreage, and anything less than a 10 percent acreage increase and normal growing conditions will leave North American oat supplies tight in 2011.
If 2010 seeded area is unchanged from 2009 and average yields are attained, production would probably increase by 250,000 tonnes. That won’t be enough to make up for supplies now being drawn down.
Strychar has been crunching oats acreage numbers in advance of his appearance at the Prairie Oat Growers Association convention in Brandon on Dec. 3.
He said an increase of five to 10 percent would be neutral for prices.
An increase of zero to five percent would be “fairly bullish” for prices and a flat acreage or any decrease would be “outright bullish.”
A 10 percent increase in acres would be bearish, he said, but he doubts that will happen.
“Any way you slice and dice this, it starts to get tight next year,” said Strychar in an interview.
Strychar and David Drozd of AgChieve are both bullish about spring 2010, when the market will have to “buy acres” from farmers considering competing crops, but they have slightly different views of what will happen during the winter.
Strychar thinks the market won’t be bullish, but basis levels might tighten and seasonal trends suggest that prices will likely rise.
Millers and processors have done little forward buying, so they will need to come to the market to cover their obligations, which is a positive factor.
For farmers who need to sell, Strychar recommends pricing into the spring months in order to pick up all the carry in the market today. Nearby prices are weaker.
Drozd said he expects to see prices slump from here, so any farmer needing cash in the next few months from oats should price now.
“If they need to move oats, take advantage of the current rally,” said Drozd, noting the bull market driving most crop prices higher is a rarity this time of the year.
“I think we’ll go back to challenge those lows,” Drozd said about the price reversal he expects to see soon.
“We’ll see if they hold.”
Once winter is over, both analysts think prices will strengthen.
