Crop Week: Oats looking weak, but farmers still in control

The North American oats market is currently bucking the seasonal trends and showing weakness, despite the tightness of Canadian supplies, according to analyst Randy Strychar of OatInsight.com.

From a Canadian fundamental standpoint, the country grew a smaller crop in 2011 and is currently working through those stocks at a quick pace, which should be supportive for prices.

However, Strychar said here Tuesday in a presentation to the Prairie Oat Growers Association during Crop Week, outside factors were limiting the upside potential — including the European debt concerns, large Black Sea grain supplies, falling corn values, and fund traders in the CBOT futures market who are net short in oats.

Funds were long in every other commodity, except oats and hogs, which means those large traders see further downside in the oats market, he said.

However, Strychar said, growers were still in control when it comes to the price they receive, with cautious end-users still needing to bring in more supplies before next year’s crop becomes available.

While the futures may not turn higher, he said, basis opportunities should present themselves going forward. Strychar also noted that the usage rate on oats is running at a record pace, highlighting the strong demand out there.

In terms of seasonal patterns, oats would normally see some firmness following harvest and heading into the new year. However, that wasn’t the case this year, and Strychar cautioned that farmers may only have another 60-day window before prices see further weakness.

Looking ahead to new-crop seeding intentions, Strychar said oats were not pencilling out very favourably compared to other cropping options, with old-crop values currently at a premium to current new-crop ideas.

However, after losing a million intended acres in 2011 due to adverse seeding conditions in the spring, Strychar expected to see oats acres hit those previous intentions, of about four million, in the upcoming 2012 season.

Such a move would bring ending stocks back in line with their average levels near a million tonnes. For the current 2011-12 crop year, Strychar was forecasting relatively tight oats ending stocks, around 750,000 tonnes.

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