Greg Downey is lucky.
The Wawanesa, Man., farmer gets to decide how to market his oats crop into a rich market that will bring him a sure profit.
But whether to sell now, at prices of $3 to $3.25 per bushel, or to hang on and hope prices keep rising, isn’t an easy decision.
“I’m wrestling with that,” said Downey, who had above-average yields and quality this year.
“It’s really hard to know what to do.”
Oats crops in eastern Manitoba were devastated this year by flooding in the spring and a heat wave in the summer. Many Saskatchewan oats crops were destroyed by drought.
Read Also
China’s grain imports have slumped big-time
China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
The result has been a drop in production that some analysts peg at about 22 percent.
But crops in western Manitoba and parts of eastern Saskatchewan have been generally good. For anyone with oats in the bin, making a sale this year offers a rare chance to make good money.
For anyone stuck with too little crop to fulfill a forward sale, however, it is a bad time.
Understanding the history of the price surge is essential to predicting where prices will go, analysts say.
Recently, oats traded for more per bushel than corn in Chicago futures, a 40 percent increase in relative prices that hasn’t been seen since the drought year of 1988.
Dennis Galbraith, who manages grain procurement for Can-Oat Milling, said this fall’s rise in oats prices caught everyone by surprise.
“It was an absolute free for all every day with somebody else not filling a contract and that company bidding up the market trying to get covered for replacement,” Galbraith said.
“The whole thing snowballed at an unbelievable pace.”
Many buyers and processors sent out crop watchers to estimate yields and quality in late summer, and no one got it right, Galbraith said.
Everyone knew western Saskatchewan wasn’t going to have much of a crop, but fields in eastern Manitoba looked like they had moderate yields and quality.
But instead of 100 bushel-per-acre crops, farmers ended up with 50. And instead of 39 to 44 pound-per-bu. crops, they ended up with 30 to 35.
That meant grain buyers who had forward contracted with farmers for grain to meet their commitments with processors began discovering many farmers couldn’t meet their obligations.
“Panic set in,” Galbraith said.
“Basis levels skyrocketed and the futures gradually caught up.”
Grain companies bid up oats prices each day as they sought to buy whatever crops were available.
Producers were stuck buying back their forward sold contracts, often for the replacement values that the companies had to pay.
But some producers have also been taking a gamble on the rising market, buying out their contracts and leaving their crops in the bin. That added to the market hysteria.
“Human nature set in and you had this free for all of buybacks going on and grain companies buying more every day, only to find out that they were further behind,” Galbraith said.
But that surge has settled down, and it’s hard to tell whether the price has plateaued.
“There certainly are people who have been talking panic since the middle of the summer,” he said.
“Others are saying the bubble is burst and it’s going down again.”
Galbraith cautiously believes the main factors that influenced the price rise have weakened since the harvest rush. Processors have covered a lot of their needs and won’t be as aggressive in the market, he predicted.
And some oats users, such as the feed industry, have been pushed out of the oats market entirely.
If human food processors find prices continuing to spiral, they will fight against being held hostage by prairie growers.
“There are companies quite prepared to (ship in Scandinavian oats) if farmers stand there and think they can drive this market to any level they want,” Galbraith said.
Scandinavian oats have already been imported through the Great Lakes this fall.
“They could come all the way to the Prairies if this price gets too stupid.”
But oats industry analyst Randy Strychar of Statcom Ltd. has a different take on the situation.
He thinks processors may have only 30 percent of their needs met, and they don’t have any choice but to buy oats for products such as oatmeal.
“I’d be hanging on right now if I had white milling quality oats,” Strychar said.
“I would not be selling them.”
Strychar thinks prices could rise to between $3.50 and $3.75 during the winter.
“What the markets need versus the supplies out there is going to keep the price moving higher,” Strychar said.
“I don’t think this is over yet.”
Galbraith said he thinks there may be more supply in Eastern Canada than some people believe. Substantial amounts of oats may be sitting in farmers’ bins waiting for higher prices.
“Who really is holding the cards? Is there a lot in store somewhere that nobody’s speaking of?”
He also said some buyers may be willing to look closer at oats that wouldn’t normally make their quality grade.
“Shopping it around this year, if you have poorer quality, might be reasonable.”
Galbraith and Strychar said producers can’t expect these prices to carry on into the next crop year. Prices will plunge next fall if prairie farmers plant a big crop in the spring and harvest a good crop.
“I wouldn’t be too greedy on a new crop (2002),” Strychar said.
He’s encouraging producers to take offers of between $2 to $2.25 per bushel for next year’s crop.
“Anything over $2 for new crop Ð sell yours, sell your neighbours’, sell the whole crop.”
His less-rosy forecast for next year’s crop isn’t based just on the expectation of a normal crop. Often, forward contracts have already spoken for much of the oat crop by harvest time.
But there is so little futures volume for December 2002 that grain companies aren’t able to hedge many forward sales that they would make for next year. The present inverted-futures market makes alternative hedging strategies for grain companies next to impossible.
Therefore, they’re not likely to forward contract much.
“The line companies that have no problem forward contracting most years are really going to balk at it this coming year,” Strychar said.
That means a far greater amount of unspoken-for oats will come off the combine seeking a buyer at the same time, which will push prices down.
Strychar said oats growers should realize they have a good winter coming, but they shouldn’t hang on into next summer.
“The growers probably have about three months to play this out,” Strychar said. “They’re in the driver’s seat for the moment.”
Galbraith, who suspects there are more oats out there than farmers are letting on, said he thinks the situation will be a standoff between buyers and sellers.
Downey is being cautious but hopeful. He plans to sell 40 to 50 percent of his crop before Christmas, then “just wait and see what happens.”
