One of the great mysteries of oats markets is that Iowa is home to the largest processing plant in the world, but they don’t buy from local farmers.
Well, they might have to based on the data we’re covering today.
Right now, there’s a surplus of oats on the market: right now it looks like there’s close to 1 million tonnes of carryout in Canada.
The five-year average is 757,000 tones.
The combination of higher carryout and a lackluster market continues to weigh on prices.
But the good news – in the years ahead – is that processing demand for raw oats is expected to rise in five years to ten years.
Clearing out that glut in Western Canada and Minneapolis will be the first step to higher prices. But it’s not likely going to happen in the short term.
By 2020-2021, Chinese oats demand is expected to surge.
Today, Australia already supplies most of the Chinese market – literally 97.5% of all oats imports by the People’s Republic come from the Land Down Undaa.
The country is pegged to consume 380,000 metric tonnes this year. That figure is actually down from the 440,000 slated from the previous year, but consumption had hovered in a range between 350,000 and this top-line number since 2013/2014.
As the nation grows more health-conscious, the world’s second-most-populous country bolstered its imports from 87,000 metric tonnes in 2012/13 to 278,000 last year in the 2017/18 marketing season.
This year, in 2017/18, it’s estimated by the USDA that China will import 200,000 tonnes – or almost 9% of global imports.
The problem… China places heavy tariffs on Canadian oats… while Australia maintains a free-trade agreement.
Looking forward, we’re looking for greater trade cooperation between Canada and China. The Prairie Oat Growers Association has lobbied to the Canadian government to fast-track policy discussions.
However, negotiations on tariffs with China are notoriously slow.
In the meantime, oats prices will have to depend on the record amount of milling that’s already occurring domestically, as well as (ideally) strong exports into the US.
If the Canadian government can help get rid of the import tariffs on Canadian oats going into China, it might be a whole new ball game.
The problem is, it doesn’t look like it’s happening any time soon.
Significant growth expected in oat processing
Global demand for raw oats looks poised to take a giant leap forward over the next five to 10 years, according to a well-known market analyst.
However, that’s unlikely to provide any short-term comfort for Canadian oat growers, who are sitting on large carry-out stocks and selling into a soft market.
“We’ve got about a million tonnes of carry-over this year and we average about 800,000, so that’s going to weigh a little bit on prices as we move forward,” said Oatinsight analyst Randy Strychar.
“Millers know what those numbers are. They know there’s a surplus … in Western Canada … and we also have a surplus in Minneapolis … so there’s no sense of urgency from the millers right now.”
However, market research would suggest that there’s lot to be optimistic about in the Canadian oat industry over the longer term.
Global demand for raw oats is on an upward trend line, thanks largely to consumption trends in China, where interest in ready-to-eat cereals and snack bars is ready to take off.
“When we look at the research out to 2021-22, based on what we’re seeing for demand for breakfast cereals and snack bars … someone’s going to have to build probably 10 mills at about 100,000 metric tonnes of capacity over the next 10 years somewhere in the world just to keep up with demand, and likely some of that expansion is going to happen in Western Canada,” Strychar said.
Chinese demand for raw oats is “huge,” he added.
“It’s probably the biggest game changer that I’ve seen in 30 years in the oat market.”
“If you look at … consumption based on a billion people in China … the numbers are staggering on growth.”
Despite a positive demand outlook over the next few years, Canadian growers continue to face a tough market.
Domestic markets over the next few months could show some resilience based on extraordinary weather events, but otherwise prices and western Canadian acreage should remain relatively flat.
Near-term prices, depending on location, are likely to remain in a range of $2.25 to $3.25 per bushel.
“I see (Canadian) acreage probably down five percent (in 2018),” Strychar said in an interview following a presentation to oat growers at CropSphere in Saskatoon.
“Flat would be a bonus, and it could be as low as seven percent (smaller than 2017).”
Strychar said domestic oat stocks — and large global grain stocks in general — will play a role in determining Western Canada’s oat planting this spring.
The value of oats versus spring wheat can be used as a benchmark.
“Right now, oats are running at about 42 percent of wheat value and those numbers are not going to buy a lot of acres.”
Oat production in Western Canada has been shifting toward the northern grain belt as acreage of other crops such as soybeans and corn continues to expand, particularly in southern Manitoba.
Oat production is now heavily focused in two areas of Western Canada — northeastern Saskatchewan and southeastern Manitoba, around Winnipeg.
Strychar said 25 delivery points account for nearly 70 percent of Western Canada’s commercial oat deliveries.
Shifting production — particularly the migration of Manitoba acres into northeastern Saskatchewan — has caused some concern among processors because beta-glucan levels in Saskatchewan-grown oats are generally one to two percent lower than those grown in Manitoba.
Meanwhile, Canadian oat exports have remained relatively steady, and domestic milling demand has risen to record levels.
The Chinese market represents an attractive opportunity for Canadian growers and exporters alike, but the Chinese oat trade is currently dominated by Australia, which commands nearly 97.5 percent of Chinese market share, compared to Canada’s 0.2 percent.
In addition to market proximity, Australia also has a free trade agreement in place with China and an established oat importing protocol.
“The loss of time is an issue. We have to develop synergies with not only the Chinese food companies but also with research institutions and the government.