Oats As a Commodity: What Drives Prices?


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Why Are Oats Valuable?

Oats are a cereal grain with high soluble fiber content. They are a source of food for both people and animals and an ingredient in the production of cosmetics.

In this article, we’ll discuss what oats as a commodity are used for, how and where they're cultivated, and what can affect oat price movements.

What Are Oats?

Oats have been growing wild in West Africa since around 12,000 BC. The first wheat and barley farmers viewed the plant as a weed and a nuisance.

Around 2,000 BC, when wheat farming began in Scandinavia and Poland, farmers observed that oats grew better than wheat in the cold, wet climate of Northern Europe.

Nearly 500 years later, farmers in this region began intentionally growing oats. Therefore, oats were one of the last cereal grains to be domesticated.

Today, oat production exceeds 22 million metric tons annually and takes place in diverse countries across the globe. The importance of the crop as both a source of animal feed and a highly nutritious food for humans ensures it will remain a leading global commodity.

How Are Oats Grown?

Oats are a member of the grass family and grow best in cool weather conditions with full sunlight and average, well-drained soil. The crop can tolerate light frosts, but will die when temperatures drop below 5 degrees Fahrenheit.

One of the advantages of growing oats is that the crop does not require intensive maintenance. When planted with other cover crops such as winter peas or winter beans, oats require no additional feeding.

Farmers generally plant oats either in the spring or late summer. Using a broadcast seeding method, they spread the seeds in rows about 3 inches apart.

Oats in a field
Oat Plant – via Pixabay

The crop goes through several stages of growth before it is ready for harvesting. Oats planted in September will have the following developmental timeline:

Foundation

During the first six months of the plant’s life cycle, three important developments take place:

  1. Root growth – the oat plant produces roots between September and March.
  2. Leaf production – the plant begins leaf production in September and develops its first visible unfolded leaves in November. By December the plant will have developed nine or more unfolded leaves.
  3. Tillering – In December the plant develops its main shoot. By February it develops nine or more tillers.

Construction

The next phase of the crop growth occurs between April and May. Three developments occur:

  1. Stem elongation – The crop’s ears and nodes appear.
  2. Booting – The flag leaf sheaths extend and open.
  3. Ear emergence – The ear emerges above the flag leaf.

Production

Between June and August, the crop completes the final stages before harvesting:

  1. Flowering – the plant begins to flower, which signals the beginning of the harvesting season
  2. Milk development – the grain becomes watery ripe.
  3. Dough stage – the grain accumulates starches and proteins and increases its dry weight
  4. Ripening – the grain hardens and becomes difficult to divide.

Oat harvesting times vary by region. Typically farmers try to time the harvest to occur when the grains have reached 35% moisture – when the green kernels on the plant are beginning to turn a cream color. Harvesting occurs by swathing, or cutting the plants to about 4 inches above the ground. The swathed grains are placed in windows and dried in the sun.

World's Biggest Oat Producing Regions

Top Oat Producing Countries

RankFlagCountryOats Produced (Thousand Metric Tons)
#1Flag of European UnionEuropean Union8,073
#2Flag of RussiaRussia5,440
#3Flag of CanadaCanada3,700
#4Flag of AustraliaAustralia1,100
#5Flag of USAUnited States of America717
#6Flag of BrazilBrazil682
#7Chile FlagChile670
#8Argentina FlagArgentina660
#9Flag of BelarusBelarus500
#10Flag of UkraineUkraine481

Top Oat Products

Oat millers produce several food products from harvested oats:

ProductDescription
Whole oat groatsOats that had the hulls removed and have been heat treated to inactivate enzymes
Steel cut oat groats
Whole oat groats that have been divided into two or four pieces
Whole oat flourWhole oat products that have been ground through hammermills or rollstands
Low bran oat flourFlour produced through bran production that has lower protein and fiber content than whole oat flour
Crushed oatsLightly ground whole groats, steel cut or flakes
Large flake rolled oats Rolled whole oat groats that have been cut into various thicknesses
Quick, baby and instant rolled oatsManufactured by rolling steel cut oat groats

The majority of harvested oats – 95% in the United States – are used in animal feed. Yet oats have many health benefits for humans:

  1. High soluble fibers – Oats make you full longer and regulate blood sugar and cholesterol.
  2. Anti-inflammatory properties – Oats have been clinically shown to prevent inflammation and heal dry, itchy skin.
  3. Best amino acid balance of all cereal grains – Oats are used as a water-binding agent in skin care products, shampoos, moisturizers and cleansing bars.

Some food products that use oats include cookies, cereals, bread, muffins, crackers, snacks and even beer.

What Drives the Price of Oats?

The price of oats is generally highly correlated with the price of other grains such as wheat, corn and barley. Most of the economic and trade factors that move oat prices affect agricultural commodities in general. The biggest drivers of prices include:

  1. Supply
  2. Weather
  3. Price of Corn

Supply

The United States Department of Agriculture (USDA) publishes monthly data on global production, consumption, trade and stocks of oats. Traders carefully monitor these numbers for evidence of supply shortages or surpluses.

In recent years, these numbers have been very consistent with only small year-to-year fluctuations in output and consumption.

However, sudden positive or negative surprises could move markets. Traders should monitor the dates of these releases as they can produce volatile trading conditions.

Weather

Weather affects all agricultural crops, and oats are no exception.

If crop yields suffer as a result of a prolonged freeze or an extended drought, then oat prices could spike higher. On the other hand, ideal weather conditions could produce a bumper crop and depress prices.

drought cracked land
Drought Conditions Can Severely Impact Oat Production – via Pixabay

One factor that somewhat mitigates the role weather plays in oat prices is the global nature of production.

Unlike commodities such as coffee or orange juice, where production is heavily concentrated in a small number of countries, oat production is spread out across many regions.

Poor growing conditions in one region of the world are sometimes offset by favorable conditions in another area. Nonetheless, weather still has the potential to impact prices.

Price of Corn

Since the primary use of oats is as a feed grain, the price of competing feed grains – especially corn – can impact its price.

If the price of oats rises significantly higher than corn, then farmers might shift toward corn for their feed. Of course, if oat prices are significantly lower than corn, then oat consumption could increase.

Over the last several decades, the price of oats has been highly correlated with corn prices. Many professionals trade the spread between these two commodities by buying the one that’s historically cheap while simultaneously selling the one that’s historically expensive.

Traders looking for clues about oat prices should pay attention to the spread between these two commodities.

What Do Experts Think About Oats?

Oats Experts

Experts are generally optimistic about oat prices. They cite the drought conditions in the northern plains states as a factor that could limit the supply of wheat. One analyst believes these poor weather conditions should impact oat production as well.

Oats has basically the same growing patterns, same fundamentals as spring wheat. It's a bullish commodity.

– Brian Hoops, president and senior market analyst at Midwest Market Solutions

Further Reading

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