FarmLead’s 2018 Oats Prices, Market Review

As we turn the calendar on 2018 oats prices and markets, it’s a time of reflection, but also one of planning. That being said, as a company, FarmLead is also reflecting on 2018 and planning for 2019 with some new products and tools! We’d love for you to have some input in the evolution of FarmLead (including some early access to try out some new tools) and so, before continuing your reading, please answer this 4-question survey. Thanks!

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FarmLead’s 2018 Oats Prices, Market Review

Earlier this month, Statistics Canada released the final yield and production estimates for the 2018/19 crop year. The published data is a testament to the ‘tough’ versatility of Canadian crops. Specific to the Canadian oats crop, 2018/19 production forecast was revised upwards by 53,300 MT compared to last month’s StatsCan estimate. Total production is now pegged at 3.44 MMT, still down nearly 8% compared to 2017/18, but not as down as previously thought.

2018 Canadian Oats Production and Yields - StatsCan

StatsCan Dec 2018 Crop Production Estimates

Tight Oats Ending Stocks

Total North American oats supply is forecast to be down nearly 5% compared to 2017/18 levels. If observed this will be the lowest oats supply in 5 years. This, combined with slightly higher U.S corn prices provided additional upside support for oats prices in Q4 of 2018.

This surge for oats prices really started in late September 2018 though. The main cause for the price rise was oat millers being concerned with the ongoing difficult harvest in Western Canada. In addition to the harvest concerns, supply pressure was mounting from U.S buyers – which represent an overwhelming majority of Canadian oats exports (roughly 91% in the past 3 years).

2017/2018 Canadian Oats Exports - StatsCan Estimates

Western Canadian oat prices began to stabilize near the end of November, thanks to the November estimates from Agriculture Canada. Both oat quality and oat yields for 2018/19 harvest came in above seasonal averages and surpassed most analyst expectations.

Oats Prices This Past Year

Oats prices this year have seen a wild ride.

In Saskatchewan, oats prices dropped to a yearly low of $2.11 CAD per bushel in mid-March. Oats prices succumbed to concerns on rail movement in Western Canada as well as ripple effects from the weakness in the broader wheat complex. Additionally, there was very little support on oats prices from buyers in the U.S market as, at the time, they were fairly covered.

With EU and Australian drought concerns as well as potential quality concerns in Western Canada though, this resulted in a particularly stressful 2018/19 oats harvest. Starting in mid-September, oats prices surged to 5-year highs, with average oats prices in Saskatchewan reaching $3.05 CAD per bushel during the week of October 25. That being said, on the FarmLead Marketplace, we did see ranges from $3.50 in Saskatchewan and Alberta to more than $4 trade in Manitoba

Saskatchewan Oats Prices - 2018 Performance

As December approached, oat prices started to level out as data revealed that the Canadian oats harvest came in better than average in terms of crop quality and yield. As 2018 comes to a close, oat prices on average will be between 20% to 25% higher than they were at the end of 2017.

The Rise of Oat Milk

The shining star in consumer goods market as it relates to oat this year is oat milk. The demand for oat milk went viral during the summer of 2018, causing shortages in grocery stores and coffee shops across North America.

Oatly is currently the largest oat milk producer in the world, with 50 million litres of oat milk produced in 2017. The company plans to expand production 1,250% within the next 5 years, opening new production facilities in North America to meet growing demand. This would translate to 62,500 MT of milling oats required.

Also expected to jump into the fray is Pepsico’s Quaker Oats, launching their own line of oat milk products in 2019. Although actual milling oat demand required to serve this new consumer segment is an estimate at best, it is definitely positive news for top oat growing nations, namely Canada.

Glyphosate Scare

A high profile case in California regarding glyphosate exposure this year could have far-reaching impacts to the agriculture industry as well as consumer food prices. The public fallout due to the souring sentiment regarding the use of glyphosate is already seeing significant ramifications in the EU.

Late November, Germany announced its intentions to implement a total ban on glyphosate use by 2023. For North American exporters, the ramifications are not immediate as the current EU / North America agreement does not expire until December 15, 2022. In this context, the maximum residue level (MRL) would fall to the detection level (0.01 mg per kg) and products with detectable glyphosate residues could no longer be sold on the EU market.

Today, we already see buyers across North America not accepting glyphosate-sprayed oats, so this may be the new standard moving forward.

Can Oats Make a Comeback?

Back in October, there was a lot of positive sentiment in the oats market. Strong headlines citing factors such as the increasing number of health-conscious consumers and improving economic conditions suggest that there will be steady growth and demand globally for milling oats.

Pepsico’s Quaker Oats had a strong year in 2018, reporting consecutive quarters of market share gains.

Despite strong milling oat demand, a significant component to the oats profitability equation is feed oat usage. Feed-grade oats demand has seen a steady decline in the past 20 years. Without a balanced rise in demand from the feed oats market, producing oat will continue to struggle with profitability compared to other crops.

Although still too early to determine the implications to oat demand, in October 2018, a research study conducted in Ireland released promising research findings that suggest feed oats could fully replace feed barley in cattle diets without affecting performance. If similar findings are revealed in other parts of the world, this could help to increase demand for feed oats in the long term.

There has been a lot of positive news regarding oats demand this year, especially regarding milling oats but also the feed oats market. However, despite the positive sentiment, it is still quite early to clearly identify whether the demand is significant enough to support oat profitability.

Global Oats Supply and Demand

According to the latest data made available by the USDA in the December WASDE report, 2018/19 global oats ending stocks has been revised lower by 30,000 MT and is now expected to come in at 2.71 MMT, the second lowest quantity since 1960.

2018/2019 World oats Ending Stocks

Compared to 2017/18, global oats ending stocks are set to be 2.6% lower.

2018 Oats Production - Top 5 Countries

2018 Global oat yields

As a result of dry conditions in late spring 2018, EU grain production, including oats, for 2018/19 is well below seasonal averages.

The December WASDE showed significant revisions to global oats movement. Compared to last month’s estimate, the EU export forecast has been cut by 57% and is now sitting at 150,000 MT. The EU is now on pace to export nearly 20% less oats compared to last year.

2018 Oats Exports - Top 5 Countries

China Hungry for Oats

In the past 5 years, Chinese oats imports have grown at a rapid annual rate of more than 28%. In other words, in each of the past 5 years, imports have jumped by a third more than the previous year.

Demand for breakfast cereal in China is growing due to urbanization and the accelerated adoption of Western consumption habits. As a result, China has become the second-largest importer of oats, just behind the U.S.

Based on China’s December forecast, the country is expected to import a total of 150,000 MT in 2018/19, down 70% compared to the previous year. It’s also a massive 250,000 MT decline from the November forecast! If observed, this will be the least amount of oats imported by China since 2014/15.

2018 Oat imports - Top 5 Countries

Ultimately, the main cause for China’s low exports this year is due to the situation in Australia. Because Canada does not have an established trade agreement with China, Canada is yet to make entry into the Chinese market.

Australian Drought Levels Oats Output

Australian agriculture was hit hard this year. Winter crop production is expected to drop 23% compared to 2017/18 to 29.3 MMT. Aggregate crop production for 2018/19 is still higher than drought periods in 2002/03 and 2006/07, which saw production of a dismal 17 MMT. However, a dry winter season this year has cut winter crop production by nearly one quarter.

According to ABARES, crop production this year has dropped to 20% below the 20-year average.

Dec 2018 ABARES Australian Oats Harvest

Specific to oats, ABARES is forecasting production to come in at 888,000 MT, down 15% compared to last month’s forecast, and is now expected to come in nearly 21% lower than 2017/18. This brings Australian oat production to the second lowest level in 36 years.

In Australia, the export forecast has been revised downwards by 37% to 250,000 MT. The country is now on pace to export nearly 55% less oats compared to last year.

Strong Canadian Oat Exports

Through Week 20 of the 2018/19 crop year (ending December 16), Canadian oat exports are sitting at a total of 697,600 MT, up 5.5% year-over-year.

2018-2019 Week 20 Canadian oats Exports (Cumulative)

2018-2019 Week 20 Canadian oats Exports (Weekly)

On the domestic movement side, farmer deliveries year-to-date are pacing last year, sitting at 976,200 MT.

Promising Oats Prices in 2019?

Overall, oats prices have enjoyed a pretty solid 2018 and smaller harvests around the world continue to support elevated levels. This will likely buy a few acres in 2019 though, which in turn could negatively impact oats prices next year.

Be sure to be back here on the FarmLead Insights page to check out our 2019 outlook for oats prices, to be published the first week of January 2019.

To growth,

Victor Han

Research Analyst
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v.han@farmlead.com
—-
FarmLead – North America’s Grain Marketplace

About the Author
Victor Han

Victor Han is an Ottawa native with a passion for data analysis. After obtaining a degree from the University of Ottawa in Biomedical Science and Business, Victor worked in the food industry as a market analyst. Since switching his attention to agriculture, Victor applies his passion for science and the natural world to grain marketing.

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