Tumble in oat futures 'a taste of things to come'

A tumble of more than 2% in Chicago oat futures may be a taste of things to come, as a freeing-up in Canada's logistical squeeze enables exports to fill a void in US supplies, the International Grains Council said.

Oats for March delivery slumped 2.2% to $4.12 a bushel on Thursday as investors took profits on a run-up in prices which had unusually take them almost to parity with corn.

Even after the drop in prices, oat futures remained up some 15% in Chicago in 2014 so far, lifted by the difficulty of transporting Canadian supplies to the US, a structural importer of the grain, where supplies have run particularly low after a series of weak harvests.

The US Department of Agriculture forecasts US oat stocks ending 2013-14 at 482,000 tonnes, the lowest since at least 1960.

Oats vs wheat and canola

The squeeze on Canadian exports reflects the country's logistical hiccups, reflecting tough competition for rail capacity between crops and other commodities, notably oil, exacerbated by last year's bumper grain crop and cold weather.

For what Canadian rail capacity is available to grains, "higher value commodities such as wheat and canola are being prioritised," the council said.

"Canada is the world's top exporter of canola, and amongst the leading exporters of wheat, both of which are taking priority in grain railcar capacity."

While Canada's exports of wheat are forecast by the IGC to rise 15% in the 2013-14 marketing year, starting in August, and those of canola increase by 16%, oat volumes are seen falling by 9% and feed barley shipments by 23%.

'Likely pressure prices'

However, with Canada blessed with ample supplies, and likely losing some export business because of the transport delays, generous volumes of oats could head south when the transport problems ease a flow likely to depress prices.

"Inventories in Canada are forecast to rise to 1.4m tonnes, their highest level in five years," the council said.

"Once the logistical bottleneck has cleared, these large inventories will likely pressure US futures, which have been underpinned by the inability to deliver oats and by extremely low US stocks."

Barley vs corn

So far in 2013-14, Canada's oat exports have fallen by 21%, and those of feed barley by 39% thanks to the transport hiccups.

Barley shipments for the rest of the season will be limited by competition with last year's record US corn crop.

"Whilst much of the crop could be trucked south to the US for feed use, record US corn production is likely to hamper increased cross-border purchasing of Canadian barley," the council said.

"Additionally, a bumper corn crop in eastern Canada is likely to hinder large eastward flows of feed."

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