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As things are, this is more than an idle question. If oats are primarily a feed grain, oat price prospects will continue to be tied to corn and other feed grains. If it is food grain there is likely to be something of a scramble by millers and an explosion in prices, if and when supplies run low. But this appears to be an unlikely scenario this year. Look for prices at current levels to only give way slowly over the winter months. (1,087 words)

The structure of the oats market is quite different from that of other grains. The most obvious difference is that the US is the largest global importer of oats, while it is the largest exporter of almost all other grains. The oat market is international but not global in scope - there are two largely isolated components - the one North American and the other European. For feeding, oats compete with other grains. For milling, there are no true substitutes.

Long before fuel ethanol was even a dream for the renewable energy people, oats were, of course, the "transportation" grain. And some residue of this remains with its use by recreational and high performance "vehicles" of the four legged kind. Much of it reputation probably results from it being regarded as the safe feed for horses. It also has specific niche uses with other livestock, much of which appears to be met by on-farm production. But its use in breakfast cereals and like snack foods with recognized human health benefits is of increasing importance, particularly in the context of declining supplies.

When oat supplies exceed these two, human and equine, demand elements, it has to compete as a feed at a disadvantage. Paradoxically the fibre content of oats, which is valued in oat specific need situations, results in it being discounted as a general feed where energy content is the criteria of value.

The unique position for the US as the dominant global oat importer is the result of a decision made about 30 years ago to tie US farm support programs for oats to their feed value. This resulted in the demise of oats as a serious production prospect for all but a very limited number of US farmers.

And as oats are generally more forgiving in terms of climate than many other grains, they have a relative production advantage in certain more northerly areas of western Canada and Europe. As a result North American trade in oats is increasingly between Canada and the US and more specifically US oat millers, most of whom are located in the US Upper Mid West. The parallel within Europe has German oat millers dependent on Finnish and Swedish production.

In the past significant quantities of Scandinavian oats, with the aid of substantial EU export subsidies, were shipped to the eastern seaboard of the US for horse feed. This business is very much diminished as Swedish and Finish farmers have developed other EU supported production options. The structural oat surplus that existed when Sweden and Finland joined the EU and justified the export subsidies is no longer a factor. Further, it seems that much of the Scandinavian equine feed business in the US south east is being lost to compound feeds.

Australia grows and exports small quantities of oats generally destined for feeding to horses both domestically and in the Middle East. It is conceivable that other large producers such as Poland and Russia might manage to export to the US but significant challenges exist with this in terms of much of the oats in these areas being produced beyond the reach of commercial channels together with hurdles associated with US phyto-sanitory restrictions on off shore grain imports.

This leaves a rather compact US-Canada market. But it is significant - more oats are usually exported to the US than Canadian barley is shipped to all export destinations.

The US has become increasingly dependent on imports as domestic production has declined over the last 20 years, Chart 1. Imports have remain quite stable but with Scandinavian oat imports declining, Canadian oats imports have increase.

David Walker
September 22, 2012