In the middle of a long-term decline in Canadian oat production, marketers work to revive the market
Canadian oat acres are likely to drop to a record low in 2013 unless prices jump in the next two or three months, says a market analyst.
“We need to stem the long-term decline in Canadian oat acre production. We need to put a bottom on this thing right now,” says Randy Strychar, oat market analyst and president of Ag Commodity Research.
If oat volume continues to decline, oats may slide into special crop status, Strychar says, which could cost millers and food companies $1.70 to $2.60 more per bushel. This could lead to a loss of residual supply and price discovery, Strychar adds. Though farmers may initially get better prices for their crops, Strychar says as oat prices rise, end users may substitute oats with other ingredients.
Part of the problem is that oats are the bottom of the heap when it comes to gross margins, says Chuck Penner, founder of Left Field Commodity Research. Focusing on productivity has helped the Canadian pulse industry expand.
“Increasing the volume per acre will make it more attractive to farmers because even at these prices they’ll get more revenue per acre,” Penner says.
Penner doesn’t see oats being contracted to the same degree as crops such as mustard.
“I think it’s going to become more of a flax situation where it is still mostly an open market crop, a non-contracted crop, but that you have more dedicated farmers continuing to grow it.”
But Penner agrees that rising oat prices might eventually eat into the food market.
As Canadian officials hammer out a trade deal with the European Union, Strychar sees a potential market for Canadian oats. Oat demand in breakfast cereals is up, and removing tariffs would open up a huge market for Canadian oats, he says.
“Oat production in the European Union is going down, down, down, down. Biofuel crops and wheat are cutting into it.”
Penner doesn’t think there will be huge demand for Canadian oats in Europe, partly because they produce their own oats domestically.
“Because oats is a lower value crop, anytime you have to transport it longer distances, it eats into a bigger chunk of the value of it,” says Penner.
Horse owners and feed markets have moved away from oats. Penner says 15 years ago about three-quarters of oats went into the feed market, but now only about 20 per cent goes into the feed market.
“It’s evolved from predominantly a feed market to predominantly food market.”
The milling market has grown slowly and steadily, but Strychar says both the milling industry and farmers need the equine market to make price and supply more predictable.
“We need to create a more robust demand market. Simply having a milling market is not good enough. That’s a one-trick pony,” says Strychar.
Penner says supply of feed quality oats is part of the problem. Oats need to be a more profitable crop for farmers for volume to increase enough to supply the equine feed industry.
But horse owners have also grown used to feeding other grains and grain-free feeds manufactured by feed companies.
“People have really gone to a different type of feed, either with the rice bran or a more concentrated feed,” says Judy Hoffman of Hoffman’s Horse Products.
Hoffman and her parents, Lorne and Marian, sell minerals and a concentrated, grain-free horse feed in Canada. Their minerals are currently available in the United States, and they are working on getting their concentrated feed south of the border as well.
Hoffman says when horses eat oats, excessive starch can ferment in the horse’s hindgut. This causes beneficial microbes in the horse’s digestive system to die, which can ultimately lead to health problems such as colic, tying up and diarrhea. Part of the problem is that people tend to give horses too many oats at one time, Hoffman says.
Along with the trend towards grain-free rations, the droughts in 2001 and 2002 spiked oat prices, giving equine feed companies cause to substitute oats with cheaper ingredients in prepared feeds. The oat industry has never reclaimed that market, Strychar says.
“Right now our biggest competitor is wheat midds. It’s a byproduct of the wheat milling industry. Second to that is corn. And probably third to that is barley,” says Strychar.
Hoffman says wheat middlings are used to make prepared feed and mineral products more palatable to horses.
“Oats would be safer than corn, but wheat middlings are really just a carrier,” she says.
The Hoffmans began producing their minerals about 20 years ago, with help from nutritionists at Archer Daniels Midland in Lethbridge. Judy Hoffman says that when they started out it was all oat-based rations, but she sees a trend away from grains.
“People are going to start seeing that these other feeds are working really well. If people can stay away from colic and those kinds of things that are very traumatic, they’re going to start feeding something else.”
“The old-school guys especially and people raised under that are going to feed (oats), but I think there’s a definite trend to change,” says Hoffman.
Equine Oats Feed Project
The Prairie Oat Growers Association has set out to recapture the United States equine market by 2018. Through the Equine Oats Feed Project, the association is funding research into oats and equine nutrition. The association has awarded its first grant, totaling $122,000, to a researcher with the University of Kentucky.
Variety development is also an important component. Strychar says they have both equine oat breeders and oat millers on the board. “What we don’t want to do is develop and breed an oat that is beneficial to the equine industry, but hurts the milling industry.”
The association is working with equine feed manufacturers and professionals who influence horse owners, such as farriers, nutritionists and veterinarians.
The Oat Growers are also marketing oats’ benefits to horse owners. Researchers conducted eight focus groups in the United States over 18 months to gauge horse owner’s beliefs around oats. Strychar says focus group participants “saw oats as natural, healthy and safe.”
Strychar says focus groups associated corn with colic and mycotoxins, and wheat midds with floor scrapings.
“The research tells us right now that oats are one of the best feeds for horses. The science tells us, the marketing tells us. We don’t have to go out and convince the owner. He already knows that. He just doesn’t know what’s in his bag of feed right now. So it’s kind of a marketer’s dream come true,” says Strychar.
The Oat Growers Association is attempting to sway horse owners by sponsoring Horse Master, a television show featuring natural horsemanship clinician Julie Goodnight. Goodnight’s show pulls in over 600,000 viewers each month and she has a large social media following.
Retrieving the equine oats market south of the border would be well worth the effort. Strychar says there are about nine million horses in the United States, based on a count done in 2005.
To be conservative, Strychar bases his calculations on 4.5 million horses. An increase of a quarter pound of oats per horse would add up to about 190,000 more metric tonnes of oat consumption in the United States, he says.
Strychar says if they’re able to get the oats ration up to 2.2 pounds, it will add up to 1.6 million metric tonnes more oats in the United States.
“That would make (oats) the third largest export in Canada, behind wheat and canola.” †