Oats market at equilibrium, lower acreage likely

Oats bids in Western Canada are holding steady despite tightening stocks, as supply and demand have reached an equilibrium for the time being.

If prices don’t see some improvement relative to other cropping options, a decline in acres is seen as likely in 2013.

Basis levels for oats in Western Canada are historically strong, but the market is having a hard time rising to the same extent as other commodities, said Ryan McKnight of Linear Grain at Carman, Man.

Canadian oats stocks as of Dec. 31, 2012 came in below average trade guesses at 1.872 million tonnes and compare with the previous year’s level of 2.33 million. The oats stocks at the middle of the crop year were the tightest of the past 10 years and are well below the 10-year average for Dec. 31 of 2.596 million tonnes.

While supplies may be tight, "the oat market seems to be finding equilibrium, as the prices aren’t strengthening," said McKnight.

Total demand for oats was not as large as in the past, particularly from the horse sector, he said.

Given the current pricing, McKnight expected to see oats acres decline in 2013, as other cropping options look more favourable. Wheat in particular may take some area away from oats.

Agriculture and Agri-Food Canada now forecasts planted oats area in 2013 at 2.595 million acres, which would compare with 2.854 million in 2012. The market analysis branch also expects ending stocks to decline to 400,000 tonnes by July 31, 2014, from an expected 600,000 tonnes at the close of the current crop year.

Spot oats bids can currently be found in the $3.60-$3.65 per bushel range in Manitoba, with recent bids as high as $3.50 per bushel seen in Saskatchewan, said McKnight.

Top-end bids, he said, were usually only available for a limited time before the orders were filled and the demand backed away again.

New-crop pricing is generally 20 to 30 cents per bushel lower and the inverse between the old and new crop is limiting forward contracting.

Given current new-crop wheat pricing, which is more in line with the old-crop bids, McKnight said oats would need to be in the $4/bu. range to get producers switching out of wheat.

– Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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