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Published December 16, 2013, 10:33 AM

Oats trading rich to corn

Oats are doing well, at least compared with corn. Chicago Board of Trade December oats closed at $3.76 on Dec. 10; corn was $4.27. And that is per bushel.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Oats are doing well, at least compared with corn. Chicago Board of Trade December oats closed at $3.76 on Dec. 10; corn was $4.27. And that is per bushel.

There’s no doubt that there are a lot of oats around, however it’s hard to get them to the big users around Minneapolis. That transportation squeeze goosed December oats by 45 cents in mid-November, admittedly augmented by the bailing out of the trend-following short speculative funds. After a subsequent big sell-off, nearby oats are up another 20 cents in the past two weeks, again because it’s hard to move them from Yorkton, Saskatchewan to Minneapolis. That said, December futures are really liquidation only at this stage.

The oats market got some bad news in the Statistics Canada report. The crop was 500,000 metric tons bigger than it was thought to be in September, and 1.2 million metric tons above last year. Oats are plentiful not only in Canada, but because Canada accounts for 15 percent of global production and a far higher proportion of trade, also on a global basis. Oat demand is fairly inelastic. The big use is human food applications, mostly cereal and oat bars, and this is a mature market. The second big use is as livestock feed, and much of this is specialized applications such as calves being weaned and dry sow rations. Equine use got hurt when oats hit $4 a few years ago, and many users switched to corn. Demand has yet to recover.

General use of oats as livestock feed is limited now that corn has become cheap.

Don’t, by the way, expect your local oat bid to follow nearby CBOT futures. While several merchants do use oats futures, they rarely use the nearby. It’s too volatile.

Long-term charts show Manitoba cash prices at 68 percent of the value of CBOT corn futures, which is as high as this ratio has been in the past few years. Oats have become expensive. The same charts suggest that what usually happens in this case is not that oats get cheaper, but that corn rallies.

It may be difficult to find a buyer to take spot delivery. Emerson Mills is paying $3 per bushel and is taking oats for nearby delivery. Grain Millers in Yorkton is bought up to next summer but is shipping by producer car at $3.25 per bushel loaded rail with shipment from April to August. Pioneer in southern Manitoba is buying for Can-Oat and paying $2.64 spot, although you may have to wait a week or so to deliver.

Eastern Saskatchewan prices are discounted to southern Manitoba. Elevators are around $2.40, but many aren’t taking oats before March. Allan Johnston Grain Marketing is buying oats for up to $2.75 in southeast Saskatchewan and $2.50 around Yorkton.

Canola

Statistics Canada estimated the canola crop at a record 18 million metric tons, which was a shock to the industry. The canola market will function to encourage demand for the remainder of the crop year as the carryout will also reach a record of 3.5 million metric tons for 2013 to ’14. Farmer deliveries have increased in the past couple weeks causing basis levels to weaken. Domestic crushers and exporters appear to have their nearby requirements covered and most elevators are plugged. Producer deliveries were lagging last year and given the record crop size, expect an onslaught of farmer selling in the latter half of the crop year.

Canola has divorced from the soybean complex where the fundamentals remain relatively snug. There are no concerns about growing conditions in Argentina or Brazil where weather has been favorable. Canola values are drifting lower and could come under severe pressure when the Brazilian harvest moves into full force in March.

Feed barley

Statistics Canada estimated the Canadian barley crop at 10.2 million metric tons, up from 8 million metric tons last year. We now project the Canadian barley carryout to finish at 2.4 million metric tons, up from 1.3 million metric tons in 2012 to ’13 and up from the 10-year average of 2.1 million metric tons. Therefore, prices are expected to move lower to encourage demand for the remainder of the crop year.

Cattle-on-feed numbers are at a seasonal high and colder temperatures have provided a good opportunity to capture the risk premium because of this weather. Southern Alberta feedlots are currently buying barley near $185 per metric ton delivered, but after the holiday season, farmers will be more aggressive sellers causing prices to fall. World barley prices have also weakened. Argentina’s harvest will come on full stream in January and Australian supplies will also be available in February.

There is no shortage of feed barley in the world, and export values are currently lower than domestic prices.

Malt barley

Domestic malting companies have most of their requirements covered for the 2013 to ’14 crop year. But we are hearing of exporters looking to cover sales. While prices have remained relatively stagnant throughout the fall, there is no shortage of malt barley, and values will likely move lower later in the crop year. It is important to sell malt barley when exporters want it because once the sales are filled, demand is limited. Given the larger crop size, feed barley prices are projected to weaken, which will pull down malt values also.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.

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