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More oatmeal anyone?

One of the most astonishing things about 2015’s grain production in Ontario was the marked increase in the size of the oat crop. Wet conditions in the fall of 2014 limited the planting of winter wheat so it appears that farmers who wanted to keep a cereal grain in that portion of their crop rotation planted oats this spring in many of those unseeded wheat acres.

The increase in this province’s oat production was not trivial. The 2014 oat acreage for Ontario came in at 70,000 acres, in 2015 it jumped to an estimated 135,000 acres, and with an ideal growing season yields were excellent resulting in a doubling of Ontario’s total oat production in 2015 over the year before. The problem of course is that oat demand didn’t double.

One of the greatest market strengths for our oat industry is the relative in-elasticity of demand for this grain. Unlike most other feed grains where formulationists can adjust feed formulas to take advantage of cheaper alternative options, the buyers of oats tend to be buyers of oats with less sensitivity to price. We have yet to see a grocery brand switch to packaging corn grits as a breakfast cereal because corn is cheaper, and very few horse enthusiasts feed pelleted wheat shorts instead of oats if they think that there is a price advantage to feeding the horses short. For several consecutive years now, oat growers have enjoyed reasonably high prices because local production was slightly below eastern Canada’s demand for their production, so as long as they could position their oats in the market for slightly less than the cost of bringing Western oats in to quench the local demand.

Up until July of 2015, Eastern Canadian oat producers enjoyed a price which benefited from the cost of freight. Essentially, if it cost $60 per tonne to position a Saskatchewan oat into the Ontario market, this province’s growers enjoyed an extra $50 per tonne for their oats, and the greedier the railroads became, the better the result for the Ontario producer. We were trading a premium freight market, but following this year’s massive increase in production, the freight reality has flipped over, and now we’re looking at taking a price that’s lower by the cost of moving these surplus oats out to another demand market. The in-elasticity that pushes the value of oats up when supplies are tight is equally non-beneficial when stocks are large. It’s very tough to create new demand for oats, so the oats now have to move to alternative areas of demand.

While Ontario’s extra 140,000 tonnes of oats is an issue of significant over supply provincially, within the 6 million tonnes of Canada’s total oat production, it is less of a daunting figure.  Although Ontario’s oat production more than doubled in 2015, it still only represents less than 5% of the national supply. It is not impossible to use this year’s oat production, but some of the crop will have to make substantial travel plans. Nearly one third of Ontario’s 2015 oat crop will need to move to the United States in order to be used making issues like the Canadian / U.S. exchange rate and access to rail freight important parts of grower’s marketing decisions going forward.

Posted on: 
October 22, 2015

Steve Kell has been in the grain and feed business in Ontario for 21 years, the past 12 of
which as grain merchant for Parrish & Heimbecker Ltd in Toronto, specializing in corn,
canola, and cereal grain trading and producer grain marketing. Steve also operates 1,100
acres, partially as a beef and cash crop operation south of Barrie, and in share-cropping
arrangements in Elm Creek Manitoba, and Temiskaming, Ontario. He is a graduate of
both the University of Guelph, (BA), and the Ontario Agricultural College, but most
importantly, from the school of hard knocks. Contact Steve

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