Quietly, US oat futures have rallied $.50/Bu (23%) from their seasonal lows scored in early September, which makes oats one of the more exciting of the ag markets this year. The graphic below compares the oats market’s performance against corn and wheat, and it just might be the case that oat prices need to secure more acreage in 2018. Assuming trend yields, it’s very likely that the combined US & Canadian balance sheet tightens further without acreage expansion and already oat supply and demand has gotten rather tight compared to recent years. Oats consumption has actually risen slowly but steadily since 2014, which harvested area has not. Dec oats are still priced at a fairly large discount to corn, and so a more pronounced rally effort may be needed.
The USDA in its Small Grains Summary cut US production 5 Mil Bu, which more than offset a lesser cut in domestic use. Canadian production as of the October WASDE was pegged at 3.7 MMTs, up 500,000 from a year ago, but higher Canadian exports will be demanded in the world market, and Canadian end stocks will be unchanged on the year, barring any surprise in Stats Can’s next production report in December. North American oat ending stocks are estimated at just 1.1 MMTs, the lowest since 2012. Stocks/use, too, will rest a multi-year low, and either stocks drop further in 2018 and beyond or it’s the job of price to find additional acreage – which may be a tough chore given this year’s boost in spring wheat prices. Either scenario suggests downside risk in oats is limited.
Should the market be content to NOT secure acreage, and assuming trend yield and trend consumption growth, the 2018/19 balance sheet is displayed below. Trend yield is calculated just under recent year, while, again, domestic use has been expected, if only slightly, in recent years. End stocks of just 700,000 MTs, and stocks/use of 11%, would be record lows, and amid declining carryover stocks – which as evidenced in wheat and corn recently provide an important buffer against production loss – this trend of ever tightening supply & demand will continue.
It’s likely that spot oat futures test $3.00 by late year, and without additional N American acres, the market could trade much closer to parity with corn by early/mid-2018.