If there was one bright spot in the oat market last week, it was that Can-Oat Milling expanded its flaking operations at its plant in Portage la Prairie, Man.
The $3.5 million expansion should give farmers the assurance that Can-Oat will be in the market for the long term, said the company’s executive vice-president.
“We’ve seen a real demand in flakes over the last four or five years, a real good growth opportunity there, and we’ve been sold out on flakes now for over three years,” said Karl Gerrand.
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The company will buy about 250,000 tonnes of oats this year, and Gerrand expects that to move above 300,000 tonnes in the next two years.
But bids for oats last week revealed the sorry state of world oat prices.
Last week, Can-Oat bids were in the range of $1.50 to $1.55 per bushel, delivered to its plants in Portage la Prairie or Saskatoon.
“I think everybody in the entire trade is surprised at how low this has actually gone, and I don’t think it’s sustainable,” said Gerrand.
Prices have slumped because of high stocks in all grains in the northern hemisphere, combined with the economic turmoil around the world.
“Everything’s deflated,” said Gerrand. “I think we’re going to see the prices stay fairly well where they are for a little while, but I think they’ll start to gain some momentum again once we get out of this calendar year.”
Fred Oleson, chief of market analysis with Agriculture Canada, said American corn prices have fallen by 15 to 20 percent during the summer, and oats have tracked the price “almost blip for blip.”
Oleson expects the downward trend to continue.
While the falling Canadian dollar has given oat prices a boost, Oleson said currency rates can be a double-edged sword: “If the Canadian dollar strengthens, and we head back to the 70-cent Canadian dollar, that would tend to weaken the prices we receive in Canada here.”
Randy Strychar, analyst with Statcom Ltd. in Vancouver, said he thinks oat prices won’t go much lower. But he doesn’t expect them to rally either, at least not until spring of 1999.
The oat crop in Scandinavian countries is three weeks behind in development, giving a bottom to the market at current prices.
Farmers will also “shut off the taps” if December Chicago futures drop below $1.10 to $1.15 per bu., said Strychar.
“On the other hand, oat prices are not going to go through the roof,” he said. “If anybody’s looking for $2 a bushel (in) Manitoba, they’re on another planet.”
The world has plenty of oats, even if European producers have a poor crop, said Strychar.
Much of the demand from U.S. millers will be for storage, not for consumption, he said. When the spread is wide between oat futures months, as it is now, millers will buy more oats than they need, store them and make money from the futures market.
If farmers hold out on selling oats, the millers won’t chase oats for storage with higher prices, said Strychar.
With more than 300,000 tonnes of oats on the books so far, Canadian suppliers need to ship about 300,000 tonnes more to the United States by the end of 1998 to reach export forecasts of 1.3 million tonnes, said Strychar.
Otherwise, stocks at the end of the crop year will hurt oat prices next year.
