Farmers are threatening the only good grain market they have.
Whether they’ll carry out their threat against flax and oats will be seen in the next month as farmers put in the 2005-06 crop.
“Not every farmer does it this way, but a lot look at what (price) they got this year when deciding what to seed for next year,” said market analyst Randy Strychar of Ag Commodity Research.
Statistics Canada recently reported that prairie farmers surveyed in March plan to increase oat acres by 14 percent and to seed a whopping 70 percent more flax acres.
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The surge in acreage is due to relatively high prices for the two grains, especially flax, which sold for more than $13 per bushel many times this past winter.
Some farmers realize small acreage crops such as oats and flax can be flooded in the year following a high-price market. They generally don’t boost their acres and may even reduce their production because they expect a price slump.
But enough farmers ignore projections of surplus stocks so that price surges are almost always followed by acreage surges.
Strychar said that means smart farmers who plan to grow oats and flax this summer should protect themselves from an almost inevitable price slump. Locking in cash or futures prices now can minimize the damage later if large acreages turn into big harvests.
“A grower should be locking in some now. If he’s waiting for harvest before beginning to sell, good luck,” said Strychar.
“I don’t think there’s anywhere to go but down, unless there’s a major weather problem.”
The rise in oat acres may not be dramatic, but the acreage will be enough to produce a massive crop that will devastate markets if farmers get average yields.
The Chicago oat futures December contract closed May 2 at $1.45 US per bushel, with old-crop July oats at about $1.38. Strychar said some traders believe new-crop oats could plunge to $1.10 per bu. if a large crop is produced in Canada.
“There’s going to be a lot of oats,” said Strychar.
Errol Anderson of Pro Market Communications said the Chicago oat market has already been scared by the possibility of a big Canadian crop.
“Traders already expect it,” said Anderson.
Strychar said farmers can now lock in a portion of their coming crop at levels that will probably look great this autumn. New-crop offers in Manitoba are floating around $1.80 to $1.85 per bu. Cdn.
“Those numbers are going to look pretty good come the fall if we have average yields,” said Strychar.
Many farmers won’t want to lock in their production, he said, because many have been hurt in recent years when they had crop failures and had to buy their way out of contracts.
But there are big risks with not contracting.
“If you’re not selling a percentage now, you’re gambling the weather will be a disaster,” said Strychar.
Farmers who still have oats sitting in their bins should be selling, Strychar said, because this year’s highs have passed by and the market will likely drift lower as the new crop year approaches. Millers are already looking forward to a bigger, better quality crop coming.
