February 3 – Big Acres Means Lower Prices for Canadian Oats in 2018?

Agriculture and Agri-Food Canada recently came out with their first forecast for the 2018/19 crop year.

For Canadian oats, it looks like acreage will expand for the third straight year.

Agriculture and Agri-Food Canada recently came out with their first forecast for the 2018/19 crop year.

For Canadian oats, it looks like acreage will expand for the third straight year.

We went from 2.86 million acres getting seeded in 2016/17, to 3.2 million in 2017/18, to 3.274 million acres in 2018/19 getting planted with oats. That’s the forecast at least from Agriculture Canada

This would technically be a 2.5% increase year-over-year and a 6.5% increase from the five-year average of 3.08 million acres.

Add in a forecasted yield of about 90 bushels per acre and the average abandonment rate of nearly 20%, you get a 3.7 million tonne Canadian oats crop in 2018/19.

This would be slightly smaller than the 3.724 million tonne Canadian oats taken off this past year in 2017/18, but it would be 7.5% more than the five-year average of 3.45 million tonnes.

From a demand perspective, Canadian oats exports are expected to remain relatively consstent at 2.325 million tonnes in 2018/19. That’s technically just 2% below 2017/18’s forecated 2.375 million tonnes and 1% above the 2.3 million-tonne five-year average.

Domestically, demand for Canadian oats in 2018/19 is also forecasted to be fairly flat at 1.145 million tonnes. This would practically match 2017/18’s domestic demand of 1.15 million tonnes suggested by the AAFC, but it is 6% better than the 1.08 million five-year average.

Ultimately, for Canadian oats, it’s all about the export game. And as we’ve mentioned previously, it’s all about the US for said Canadian oats exports.

But beacuse of those slightly lower exports and slightly larger exports, Canadina oats ending stocks ar expected to balloon up to 1.15 million tonnes. That’s almost 30% more than 2017/18’s forecasted carryout of 900,000 tonnes. It’s also 36% more than the five-year average of 848,000 tonnes.

Does this mean oats prices are heading lower, Brennan?

Well, it certainly appears that way. Specifically, AAFC is forecasting oats prices on the futures board at the Chicago Board of Trade to drop from an average of $3.55 in 2017/18 to $3.32 USD / bushel in 2018/19.

But what about that Chinese oats demand I’ve been hearing about? 

Stop it. There is no Chinese oats demand unless the politicians and producer groups start working more aggressively on getting a deal done with China like the Australians have. This is why this “Newfound Chinese Oats Demand” will stay in the “Noise” category for the time being.

Granted, the Canadian Dollar could have an impact on oats exports into the United States. Put another way, the Loonie staying below 80 cents USD is likely good for the exports of Canadian oats.

But overall, there isn’t a huge amount of bullish demand factors that can accommodate a bigger crop.

Thus, we’ll have to continue praoctively manage our oats price risk as prices trade sideways, to possibly lower in 2018/19.

 

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AAFC’s Canadian Oats Forecasts for 2018/19

For 2017-18, total supply increased by 7% as the higher production more than offsets the lower carry-in stocks. Total domestic use is forecast to decrease by 1% due to lower feed use and trend human consumption. Oat grain and product exports to the US are forecast to increase by a total of 3% to the highest level in nine years. Carry-out stocks are forecast to increase 32% to 0.9 Mt due to the higher total supply. The Canadian oat price is forecast to increase due to a higher forecasted US oat futures price and the continuing supportive Canadian dollar.

Spot oat pricing on the Canadian Prairies continues to see basis levels which are near the previous five-year average.

However, for the Manitoba #2CW price, this is a year-to-year decline. The impact of the USDA January 2018 reports was neutral as the market had already factored in the lower production and stock situation. Final US 2017 oat production was 24% lower than 2016. The Grain Stocks report showed that in the past year total US oat stocks have decreased by 12% from December 1, 2016 with the largest decrease being in off-farm stocks.

For 2018-19, seeded area is forecast to increase 2% from 2017-18 due to good US oat futures price levels which will contribute to competitive pricing versus other cropping choices. With a return to an average rate of abandonment and yield, Canadian oat production is forecast to decrease by 1%. Despite higher area and lower production, the forecast for a 32% increase in carry-in stocks allow total supply to increase by 4%. Total domestic use is forecast to remain unchanged as feed use and human consumption remains flat. Exports of oat grain and products are forecast to decrease due to higher area seeded and production in the US. Carry-out stocks in Canada are forecast to increase to 1.2 Mt due to the higher supply and slightly lower disappearance. The Canadian oat price is forecast to decrease due to a lower oat futures price in the US and a slightly less-supportive Canadian dollar.

The new crop US oat futures prices are running near to slightly higher than at this time last year. Comparing market conditions year-to-year, the futures levels are generally higher but the Canadian dollar is weaker. The overall effect is that prices in Canada will be flat to slightly higher. The new crop price contracts on the Canadian Prairies are similar to last January.

As of the end of November, the USDA projected increases of 12% and 49% for seeded area and production, respectively. Due to the sharply lower beginning stocks, total supply is projected to decrease slightly. However, because of the large production increase, ending stocks will climb by 27% and oat farm gate prices will move lower. With a forecast for a return to average yields and abandonment rates, the North American oat supply will expand for 2018-19. The situation for Canada remains positive but prices are not expected to reach the level of last crop year.

Canadian exports of oat grain and product to the US are expected to decrease from the high of 2017-18 which had been the highest since the 2008-09 crop year. A bullish factor, which provides underlying support, is the forecast for the slightly higher average nearby US corn futures price.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.