The US oat crop is suffering under the same conditions as the spring wheat crop, and yield reductions lie in the offing. The table above displays production by state, and simply accounting for drought in the Northern Plains, the USDA’s initial US oats yield is likely some 5-6 Bu/Acre too high. Conditions across the Midwest are decent, but we note that SD, ND and MT account for 30% of the oats production. Reduced production looks to impact feedgrain consumption, and imports from Canada look to be a multi-year high.
Condition ratings in ND are the lowest on record for mid-June, and ratings in SD are the 3rd lowest on record. GD/EX in ND as of Sunday was pegged at just 30%, vs. 81% a year ago; GD/EX in SD was pegged at 33%, vs. 68% last year; and GD/EX in MT was pegged at 29%, vs. 71% a year ago. The graphic adjacent displays the relationship between crop ratings in mid-June and whether yield was above or below trend in ND. There’s a decent fit, and never has ND’s oats yield exceeded trend while mid-June crop ratings were below 50% GD/EX. In fact, our work suggests ND’s oats yield will be 45-50% below trend, and at 40 Bu/Acre, yield in 17/18 will be the lowest since 1989. It’s not a big market, but amid poor pasture ratings and reduced wheat production, more corn will be fed across the Northern Plains.
Even assuming normal weather and trend yield in Canada, North America’s oats balance sheet will be tightening – and noticeably so relative to recent years. ARC pegs combined US & Canadian oats production at 288 Mil Bu, down 6 Mil from the USDA’s June forecast. North American oats ending stocks are estimated at 65 Mil Bu, down 6 Mil from USDA and down 18 Mil from last year. Notice that stocks/use is cut in half from 2015/16, and stocks/use at 15% is actually the lowest on record.
Corn holds a 42% premium to oats this evening (basis spot futures), which compares to a premium of 110% on this week in 2016. Cash corn is also quoted at a $16/metric ton discount to HRW across the W Plains, and on the margin corn is better positioned to maximize feed use.