Two weeks ago, we got the USDA’s prospective plantings report, which showed
that there are more oats acres that are getting planted in the US in 2018.
This week, the USDA released its April 2018’s issue of the World Agricultural Supply and Demand Estimates (WASDE) report.
In the report, 2017/18 US oats endings stocks are edging higher by 8.5% from 20 million bushels reported in the March WASDE to 22 million reported in April. This is due to a slower pace of US oats imports. More specifically, total US oats imports were reduced slightly by 3% from 90 million bushels in March to 87 million bushels now in April.
A slower US oat import pace can be viewed as a slightly bearish news for oats prices and producers in Western Canada.
On the demand side of the equation, a slower pace of the US domestic consumption is anticipated. Total US domestic consumption was lowered by 3% from 168 million bushels in March to 163 million bushels in April. This was triggered by a reduction of Feed and Residual use from 90 million bushels in May to 85 million now in April.
But what else is going on the North American oats market going forward in 2018/19? The USDA does not release its forecast for the 2018/19 crop year until next month.
With these different factors, what will the supply and demand situation look like for US oats? What are the implications for oats producers on both sides of the border?
The table below depicts America’s supply and demand table for oats over the past six marketing years (2012/13 to 2017/18). We’ve also inputted a scenario for 2018/19.
For 2018/19’s supply side of the equation, we take the USDA’s estimate of seeded acreage expanding roughly by 5% to 2.72 million acres.
Abandonment is pegged at roughly 63% in line with the 5-year average. The explanation of this very high abandonment number is that oats producers in the top 5 US producer states such as Minnesota, Wisconsin, Dakotas, and Iowa tend to seed lots of oats acres in the spring and abandon them afterward depending on the profitability of the oats crop. Also, a big chunk of these acres is used for other purposes such as feeding.
Using an average yield of 70 bushels per acre (above the 5-year average of 66), one could expect a crop of 70 million bushels (or 1.08 million tonnes). This would be in line with 2014/15’s production level and the 5-year average.
As for the imports, we think that strong US oats import pace will do the job of replenishing oats millers south of the Canadian border. So far, 2017/18’s Canadian oats exports are pacing above the 2016/17 levels and the three-year average, as noted in the chart below. Hence, we would peg US oats imports in 2018/19 at 90 million bushels (or roughly 1.4 million tonnes).
On the demand side, the 2018/19 remains unchanged from 2017/18. Exports of 2 million bushels (or 30 thousand tonnes) and US Food and Industrial Use of 76 million bu (or 1.17 million tonnes) and Feed and Residual use of 85 million bushels (or 1.3 million) which would be in line with USDA’s forecasts, but also the trend of the past few years.
From an ending stocks perspective, in the 2018/19’s scenario, the US oats balance sheet could get somewhat light.
Accordingly, the 2018/19 stocks-to-use ratio comes in at 11.7%, which is below 2017/18 ’s number pegged at 13.2% and the 5-year average of 27.1%. Clearly, this scenario is a bit more bullish and supports the upside price potential.
Could we see something in the neighborhood of $3.5 USD per bushel or $4 CAD per bushel in oats prices on both sides of the border? It’s certainly in the cards.
At the time of writing, oats prices on both sides of the border are sitting at $2.30 CAD per bushel delivered to Saskatchewan elevator and $3 USD per bushel delivered into Minneapolis elevator. Yes, you can get $3 USD but you gotta truck it all the way to the Twin Cities! It looks like the oats prices are looking for a new price direction so there are strong chances that they will edge higher, as shown on the chart.
While the 2018/19 scenario is entirely hypothetical, the purpose was to go through the mental exercise of what oats market conditions in North America could be.
Obviously, a lot of this hinges on the weather as well as with oats acres in Canada.
Thus, acreage and weather will be the two, clear wild cards to watch going forward.