Oat futures prices may be down from recent years but they are strong compared to other feeds, prompting a leading oat market analyst to urge producers to sell soon.
“There’s nowhere to go but down from here,” said Randy Strychar of Ag Commodity Research.
“We are not short of oats. Come springtime, in June, if we have good growing conditions (farmers) are going to dump these oats and prices could collapse 20 to 30 cents a bushel.”
Oats have occasionally hit $2.25 US per bushel in recent years, taking the shine off recent futures prices of less than $1.45 per bu.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
However, oats have been one of the strongest commodities this winter and analysts say that its price has jumped far out of line in its relationship to corn, which sets underlying feed grain prices.
Usually oats are sold at a large discount to corn because of corn’s higher feed value. However, on a per tonne basis, oats currently enjoy a strong premium to corn, Strychar said. Usually oats sell for $5 to $15 per tonne under corn and the range tends to run from $15 under to $15 over. But in recent weeks the oats premium has been much larger and Strychar thinks it is unsustainable.
“We’re a good ways into a huge premium.”
The highest premium ever for oats was in 2002, when it reached $76 per tonne over corn. However, that was caused by the widespread drought in Western Canada. This year there is no oats shortage.
The run-up in oat prices in relation to corn this year is partly the result of a poor quality Canadian crop.
Union Securities analyst Ken Ball said commercial users appear to be using the oats futures contract to buy physical oats because they are hard to find this year.
“Obviously the commercials are using the futures as a quality delivery vehicle.”
That led to surges in futures buying leading up to contract expiry dates, which drove oats prices higher.
While commercial processors have been willing to bid high to get the quality they need, feed grain buyers have been less keen and Strychar said many are learning to live without oats.
“Every time the prices go up, we lose more of the feed grain market,” he said.
Southeastern U.S. horse feeders grew accustomed to buying pelleted rations in recent years when oats were unavailable or unaffordable because of drought. Now that oats have become expensive relative to corn, they are unlikely to buy.
“I don’t think we’ll ever get that back,” Strychar said.
U.S. feed users are not buying Canadian and Scandinavian oats this winter, so once food processors have covered their milling oat needs, demand will evaporate.
Strychar said oat prices were also affected this winter by Canadian producers’ unwillingness to sell at prices that appeared unattractive compared to recent years, forcing processors to bid up prices to meet their needs.
He said producers should pat themselves on the backs for pressuring the buyers and now reap the benefits before it’s too late.
“You held up to get the prices up. You got the prices up. Now what do you do? You sell it,” he said.
“They should be jumping on the bandwagon. There is no shortage of oats.”
Ball said there is still some potential for the March futures contract to rise, but there is far less upside potential this year than in recent years and producers shouldn’t wait for a big rally.
“I don’t think the market is in a position where we’re going to see oat prices, as we have in recent years, rocket up to some pretty extraordinary prices,” Ball said.
Strychar said farmers should also lock in 10 to 20 percent of their new 2005-06 crop because prices will plunge if there are no weather problems this spring.
There will likely be an oat carryout of 1.1 to 1.3 million tonnes, a 20-year high, and combined with an average crop, “you’ve got a serious problem.”
He said producers need to keep their eye on corn and realize when they’re being offered great relative prices, even if they don’t compare to the last few years.
“It’s hard to convince them that $1.80 is a good price, but over the last 15 years that’s a good number,” Strychar said.
