Tightening oat stocks to underpin market

(Resource News International) — Expectations for tighter supplies down the road should keep oats reasonably supported compared to other grains.

“For the long-term, oats are fundamentally bullish,” said Ryan McKnight of Linear Grain at Carman, Man., noting that the carryout for 2009-10 is expected to be below the five-year average.

He expected oats would strengthen relative to corn, although oats also won’t become too expensive to price themselves out of the market. Substitution could occur if oats prices get too far out of line, he noted.

Statistics Canada recently pegged 2009-10 Canadian oats area at 3.879 million acres, which would be down from 4.345 million the previous year.

Movement in the cash market for oats is slow for the time being, according to McKnight.

Farmers were unwilling to make any large commitments until they get a better sense of how their crops will actually turn out this year, he said.

While the longer-term outlook is bullish for oats, the market may be hard pressed to see much strength in the short-term. For the time being, McKnight didn’t expect oats to do much aside from following corn, “and corn’s looking pretty bearish right now.”

In addition, U.S. companies are still holding onto large old-crop oats supplies, which will continue to overhang the market for some time, said McKnight.

He noted that some of those supplies could be sold into the cash market if basis levels make it profitable for those companies to do so, further weighing on nearby values.

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