Back in the day, I grew oats, lots and lots of oats. That market disappeared for me partly because many Ontario farmers started to enjoy growing corn and soybeans versus oats. I was in the pedigreed seed business at the time and the need for seed oats disappeared. It wasn’t a case of lowering my price; it was more of a case that I couldn’t even give them away. So I grow more corn, just like the rest of us, we all know that drill.
So when I look at the problems in the oat market now it takes me back. Should I be growing oats this spring based on the March futures price currently at record levels? The old axiom for growing oats in southwestern Ontario was that you had to have them planted in March. If you planted oats in March, you generally had good oats versus planting them later into April and even May. I can remember planting oats with snow banks on the edge of the field. With another polar vortex pummeling my farm, it doesn’t look like an oat year for me.
I do not anticipate any stampede into the oat market. We’ve got lots of oats in Western Canada and at the same time we have US Mills hankering for oat supplies, which aren’t there. It is a laboratory for poor arbitrage. What has been a chronic situation in Western Canada, with regard to poor grain transport is turning into a nightmare. Despite record grain exports out of Western Canada, millions of dollars are being lost simply because of poor arbitrage. The opportunities are there but there’s no way to get the oats to the people of want them.
In Western Canada it’s not necessarily about oats. It is about everything. You can even include oil in that mix which is making it that much harder to transport agricultural commodities. With 30% more of everything last year, coming out of Western Canadian fields, I guess we could see this coming. Add all this Canadian cold weather into the mix and it is just made it that much worse.
Politics will certainly be part of the solution to these Western Canadian agricultural marketing woes. Western Canada is an island within the continent and that’s the reason you see our government-promoting Keystone so keenly. The same type of enthusiasm must be put into Western grains transportation infrastructure.
Of course I do not see any Mississippi River in our future. Our American friends have such an advantage with their climate and their population. As Canadians, we are privileged to have access to such a market. However, with the genetic improvements in cultivars, our export needs into the United States will only grow. If our infrastructure does not improve with it, we will continue to frustrate our own economic growth.
The oat example is just the soup du jour of our agricultural economic world. If it’s not that in Western Canada, it is the discount of canola to soybeans. Arbitrage is a funny thing but one buyer and seller are far apart physically it is only a philosophy.
In Eastern Canada we don’t have the same type of issues. For instance most of the corn produced in Ontario is consumed here. Many farmers, myself included often complain about export pricing. Export pricing means lower cash prices generally, but those prices are the status quo for our Western Canadian friends. Sometimes it is a matter of perspective.
In about 3 weeks I will be traveling to Québec to speak about the grain markets. Québec holds a unique place in Canadian agriculture for many reasons. They are uniquely placed in Canada to export grain. Their proximity to saltwater gives them unique opportunities to export grain, which isn’t consumed in Eastern Canada. All those dairy cattle and hogs in Québec eat a lot of corn and soybean meal. What isn’t consumed can be exported down to Boston or shipped out on St. Lawrence River ports. This year some Québec corn is going to Ireland.
It is all about arbitrage, the practice of taking advantage of price differences in different markets. My friend Elaine Kub in her book “Mastering The Grain Markets” talked about picking stones as a kid on her South Dakota farm. She thought those stones useless, but she said several miles away, they were being sold for landscape stones. That’s arbitrage.
Ditto with grain. The frustrating part is making it all work. Canadian oats are the rock stars of that right now. However, that’s a prize we don’t want. Facilitating transportation infrastructure to boost our agricultural markets will always be key. Getting there is proving so elusive.