Whether it’s the 30 percent increase in oat acres expected in Western Canada this year, the news that one of the largest millers in the world won’t accept oats treated with glyphosate, or the underlying trend lower in the entire cereal crop complex, there’s plenty of uncertainty to go around in the oat market right now. And that’s without mentioning the fund-related volatility in oat futures over the last week, including a 20 cent nose-dive on Monday.
“In 30-some years in the oat market, this is about as confusing as I’ve seen it. Between the acreage numbers, the lack of profitability in a lot of crops, the glyphosate issue, health and sustainability issues in general — there are a lot of unknowns,” says Randy Strychar, president of OatInformation.com in the interview below.
According to the Statistics Canada March planting intentions report released last week, Canadian oat acres will rise by over 30 percent this year — from around 2.8 million in 2014 to approximately 3.6 million. While this number by itself is very bearish, a closer look at the oat supply and demand tables shows the balance might actually be tight in 2015-16, says Strychar.
“When you really dig deeper into the numbers, right now we’re using a 24 percent increase — historically we over-estimate acreage by about six percent in March versus the final seeding numbers,” he explains.
Assuming strong milling demand and a small decrease in exports over the next year, he says stocks at the end of 2015-16 currently pencil out at around 600 thousand tonnes.
“That’s about halfway between the record low and the average. So I would say it’s tight. It’s certainly not bullish, but it’s tight. And that 600 assumes everything else goes right,” he notes (continued below).
Adding to the uncertainty surrounding oat acres was the news last week that Grain Millers Inc. — one of the largest oat millers in the world — will not accept oats treated with glyphosate to aid with dry-down.
“(The impact) depends on how many people jump on board. Is Grain Millers the only company? Or do companies like General Mills and Quaker Oats jump on board? That’s unclear at this point,” says Strychar. “The feedback I’m getting at the farm level is a lot of farmers are not happy about not being able to use glyphosate on their oat crops. Does it affect whether they grow oats or not? I think it’s too early to tell.”
While Health Canada recently reaffirmed the safety of glyphosate, the decision by Grain Millers could open the door to similar requirements for other crops, he notes.
Despite all these unknowns, Strychar says he has a relatively friendly outlook for oat prices in the long-term.
“The problem is the whole cereals complex could continue to drop. If wheat drops, corn drops, oats will follow it down. What I see as friendly is that oats at some point down the road here are going to probably become more profitable than wheat, and to a lesser degree, corn.”