Canadian growers could see a little price spike toward spring if U.S. buyers perceive they’re considering planting fewer oats this year.
But whether the oat market budges upwards depends almost totally on the weather this year, says cash grain broker Todd Busby.
There’s more than enough oats to meet U.S. processors’ needs right now, said Busby, who works with Mitcon Inc. in Calgary.
“I just think oats is a dead market. It’s a flat, flat, flat market right now,” he said.
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So the only thing that will stir up the stagnant market is a weather scare about next year’s crop.
For farmers with oats in the bin, Busby said there’s one way to handle this situation.
“Plain and simple: Sell the product, and if you’re still bullish through the time frame, he probably should look at owning some Chicago corn or oat (call) options as a replacement to his sale.”
Owners of call options pay a premium so they can profit when prices rise. If prices don’t move, or sink lower, the most they lose is the premium.
“If you have oats in the bin and the market drops like a stone, you’ve lost every penny that that market has moved,” said Busby.
On Feb. 5, May Chicago oats futures were trading around $1.52 (U.S.) per bushel. An at-the-money call option at $1.50/bu. was trading at 8.75 cents (U.S.) per bushel. A 5,000 bushel options contract would work out to about $619.20 in Canadian funds, said Busby.
But a weather scare would also cause rallies in the corn market, he said. And because more people trade corn in the U.S., a corn call option would give a farmer “the best bang for his buck,” he said.
