Producers see three strikes against the old-crop oats market and don’t
have much to look forward to unless the weather shrinks the new crop.
Cash prices for oats have fallen sharply since April 8, after a major
oats buyer cut its cash bids, heavy snow fell in parts of the Prairies,
and Agriculture Canada estimated prairie production will increase by 40
percent this summer.
“Talk about all the guns quieting at once,” said oats analyst Randy
Strychar of Statcom Ltd.
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“Those three events did bust the back of the bull market.”
Cargill dropped its country cash bids suddenly. Rumours followed that
Cargill was going to fulfills its oats sales to Quaker Oats with
European supply.
Other millers quickly followed suit and dropped their cash bids.
At a couple of other times this winter the millers tried the same thing
by lowering prices, but producers didn’t bite, and prices stayed high.
But this time farmers, worried that demand really was disappearing,
sold into the falling market.
“Whether it was a bluff or not, the buyers lowered them and the farmers
sold and that was all that it took,” said Strychar.
The combination of the Cargill move, the snowfall and the forecast all
came within days, causing a rush of bad news that undermined confidence
that supplies would remain tight. Heavy rains in parts of Manitoba and
eastern Saskatchewan, the heart of milling oats production, further
eased supply worries.
“Once the horse is out of the barn it tends to run away at high speed,”
said Dennis Galbraith of Can-Oat Milling in Portage la Prairie, Man.
“I’m a little surprised it happened so fast, but those things all
happened together.”
Strychar said the bad news wouldn’t have meant much in December,
because the short crop still had months to itself in the market, but
now an American crop is only three months away and many users and
millers think they can stretch their supplies.
With many mills having filled all their needs, there are fewer buyers
in the market.
Strychar said there is still the possibility of “fireworks” in the
futures markets as the May contract is closed out, but the cash market
is unlikely to see a return to this winter’s high prices.
The breaking of this bull market shows how easily prices can slide from
strength to weakness, Strychar said.
Farmers, bullish on the prospects for next year’s crop, should be
considering present new-crop bids and not get too greedy.
Up to now, only about one quarter the normal amount of oats have been
contracted for the new crop. That means a lot of oats will be coming
off the combine in the fall looking for a buyer.
If Agriculture Canada is right and production increases by 40 percent,
prices could tank.
“If three quarters of a million tonnes more does arrive, watch out,”
said Strychar.
“Two dollars (per bushel) won’t be there any more. More like a dollar
and a half.”
