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Published May 19, 2014, 09:36 AM

Oats coming back to life

Many buyers had nominal bids of $2 per bushel, but weren’t taking delivery this winter. Oats were the last crop to get loaded in anything that moves grain. Even now, with the rail system gradually normalizing, there are few, if any, oats moving anywhere by rail. But now, at least if you do some legwork, you can probably find a buyer.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — It has been a tough year for oats sellers, especially around Yorkton, Saskatchewan.

Many buyers had nominal bids of $2 per bushel, but weren’t taking delivery this winter. Oats were the last crop to get loaded in anything that moves grain. Even now, with the rail system gradually normalizing, there are few, if any, oats moving anywhere by rail. But now, at least if you do some legwork, you can probably find a buyer.

Eastern Saskatchewan bids are around $2.50 freight on board, although many elevators remain no bid. Grain Millers inYorkton are still not buying spot.

They had committed to moving oats via producer car through the winter and much of that has still not moved. They’re saving capacity at their mill in case those cars never show up.

Emerson Milling in Manitoba is $3.25 per bushel for spot, although it is booked through July. Southern Manitoba elevators are around $3.25 spot and taking delivery, and dealers are paying up to $3.50 delivered. These oats are being trucked to Minneapolis.

Alberta bids are around $2.40 to $2.60 for May, June and July delivery.

Supplies are plentiful.

The odd vessel of European Union oats is getting an export permit. Generally, these are going to the U.S. southeast, servicing the pony oats market. There is a possibility that an oats cargo could arrive in the Great Lakes for delivery against Chicago Board of Trade oats futures.

American oats processors were talking about closing their doors for lack of supply this winter, but the heat seems to be off. The huge differential between Saskatchewan cash oats and Chicago oats futures, which hit a high of $3.53 (Canadian) per bushel in late February, forced enough oats south by truck, to the point where most American users are comfortable.

The first new crop planting forecasts were generally calling for higher oats acres this spring, as oats are relatively cheap to grow. Oats planting intentions gradually dropped through the winter with the difficulty of moving what was already in the bin. Now, with movement possible, and the season behind schedule, oats planting intentions are again on the rise. When the smoke clears, oats plantings in western Canada will probably be about the same as last year — 2.9 million acres, up 20 percent from 2012.

Wheat futures rose $1.80 per bushel since early January and now western Canadian cash wheat bids are catching up. This will move some acres from oats to wheat. Production is unlikely to match the 2.9 million metric tons produced last year, unless we have another extraordinary growing season.

New crop bids at Manitoba elevators are $3 to $3.05 per bushel, with August through January delivery. Emerson Mills is at $3.50 for new crop with delivery split between November and March. It’s hard to find a new crop Saskatchewan bid.

Milling wheat

July Minneapolis wheat futures have rallied nearly $2 per bushel since the January lows, and basis levels have narrowed by 50 cents per bushel. Rail movement is improving, cleaning up the backlog of grain in the elevator system.

Adverse conditions in the U.S. hard red winter wheat region and lower overall U.S. winter wheat production has caused the futures market to incorporate a risk premium. We now find U.S hard red winter wheat out of the Gulf at a sharp premium to mid-protein hard red spring off Vancouver. Therefore, world buyers of mid protein hard wheat are switching to or shopping for Canadian origin. Rail companies halted exports to the U.S. earlier in winter, because of the longer turnaround time. We now find rail companies once again servicing U.S. origins for high-protein wheat-enhancing protein premium. Thunder Bay, Ontario, opening was delayed by one month but is now in full operation.

Ukraine and Russia wheat growing regions have now received much needed rains after below-normal precipitation throughout the winter and early spring.

All these factors have caused prices to move higher, relative to the values earlier in winter.

2013 durum

The durum market has been percolating higher in the past few weeks for three main reasons.

Export movement came to a standstill earlier in winter because of the rail backlog that halted exports to the U.S.

Rail companies are now starting to service U.S. origin destinations and the U.S. durum fundamental structure is relatively tight. Secondly, most of the durum moves off the East Coast. Rail companies stopped shipments to St. Lawrence when the legislation was passed because of the long turnaround time. Thunder Bay opening was delayed by one month, which basically halted durum exports. Thunder Bay is now in operation, alleviating the durum backlog. In the middle of winter, there was no home for durum. Statistics Canada reported larger-than-anticipated feed usage, which was a result of farmers moving low-protein durum into feed channels. We now find the Canadian ending stocks will be down from earlier projections as the export pace surges.

Eastern France has been dry and traders are factoring a year-over-year decline in durum production from this region. Morocco durum production will also be down sharply. Both of these factors are enhancing demand for Canadian durum. The durum market has inelastic demand; therefore, a small change in supply can have a large influence on price.

Strength in the wheat complex has also spilled over into durum.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, call 800-567-5671 in Western Canada and North Dakota, 204-942-1459 for all others, or e-mail admin@canadagrain.com or visit canadagrain.com.

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