Large Oat Supplies In Storage May Limit Prices – for Oct. 1, 2010

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Oats traders say large supplies of oats held in storage in the U. S. may limit the upside in the market, despite the quality concerns with Canada’s crop this year. The recent high prices were also causing end users to ration some of their demand, which may take a while to come back, according to oat merchants.

Whitebox Commodities Holdings Corp., which operates under the trade name Riverland Ag and was recently purchased by Ceres Global Ag Corp. of Toronto, became a major player in the oats market in recent years by buying elevator space and using it to store oats and make money off storage fees and by making sales when prices rise.

Through its grain handling and storage facilities in Minnesota, North Dakota, New York and Ontario, Whitebox has a total storage capacity of 44 million bushels, according to company information.

Oats merchant Ryan McKnight of Linear Grain at Carman, Man. said Whitebox was currently estimated to be holding about 250,000 tonnes (15 million bushels) of oats. He said a number of end users recently made purchases from the company and are now paying fees to keep those oats in storage.

General Mills was sitting on a year’s worth of oats supplies of its own, McKnight said, but other end users including Quaker, 21st Century Grain and Canadian millers will eventually need to buy some more supplies.

“It will be a gap-filler,” McKnight said of the oats held in Whitebox elevators.

“When oats get short in Canada, this spring or summer, then anybody who owns Whitebox delivery oats will utilize those,” he said. “Then the other guys will need to come to the market to get some.” Some mills will be more aggressive than others, he said, depending on the supplies they are holding.

From a pricing perspective, McKnight cited analysts pegging Chicago Board of Trade (CBOT) futures in a US$3.40 to $4 per bushel range in the near term, with movement in the corn market doing much to determine where it goes.

Price rations demand

Oats prices will be strong over the next few months, he said, but McKnight recommended producers lock in new-crop prices this winter and spring as higher prices will cause end users to ration demand.

“The price will ration demand, especially in the horse market,” said McKnight, adding that “these rallies and production issues really damage the market… it’s priced itself out and will take a long time to price itself back in.”

Réal Tetrault, president of Emerson Milling at Emerson, Man., said there was some uncertainty as to how much oats was still being held by Whitebox. “What is known is that the quality up here is very suspect.”

While any oats in storage will temper the upside to some extent, Tetrault feels late seeding and frost in Saskatchewan would keep prices well supported overall.

Cash bids would likely come in at a premium to the Chicago futures, he said, especially for good-quality supplies as the futures only deal with No. 3-grade oats. “Whoever has a crop will do very well this year,” said Tetrault.

While “high prices will eventually cure high prices,” it will be next summer before that happens, he said.

About the author

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Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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