Open markets, open doors Deregulated Oats

The jury is in. Since oats were released from the Canadian Wheat Board’s mandate in 1989, the Canadian oat industry has become more flexible and responsive to market forces. One of the earliest and most important outcomes has been the producer’s ability to forward contract.

Oat grower Stephen Hodgetts near Camrose has been in the oat business since the days of board control. "The big difference with the open market is that I can sell wherever and whenever I want with no quoted quantities. I can sell the whole crop or part of the crop. I have options."

The CWB maintained exclusive control of oat exports and domestic milling markets for 40 years. By the 1980s oats were considered a specialty crop, but the volume traded by the CWB had significantly declined, putting oats low on the farmer’s list of crop choices.

According to a recent Alberta Agriculture and Rural Development study*, institution of an open market for oats has resulted in increased exports of oat grain and oat products and an increased Canadian market share in the U.S. milling market. But the benefits don’t stop there. The Canadian oat industry also experienced an increase in primary processing, which in turn improved the financial viability of oats for western Canadian producers.

Hodgetts says: "A lot has changed in the oat industry. As far as oat producers are concerned, we don’t have low initial payments anymore and then have to wait for the final payment like back in the old days. We can move our oats when we want."

Hodgetts markets portions of his crop depending on the market signals he receives. "If I figure I can get ‘X’ number of dollars for a bushel, I might be satisfied with that, but I’m always hoping the price will go higher."

In 2005, Hodgetts hedged a portion of his crop when he considered the upfront price a bit on the low side. He got his price after waiting for the market to drive prices up. "It’s risky for sure, but I knew the oat buyers were hungry and I had a quality crop. I also knew that early in the fall of 2005 buyers were up in the Peace sourcing oats as they came out of the combines. I hedged my guess and waited for the market to open up again."

Hodgetts simply sat tight and eventually got his price. He says: "Sit back, wait and listen."

Deregulation of oats has not only increased importance of the futures market, it has provided producers like Hodgetts marking options and risk management tools.

Oat grower Leo Meyer at Rycroft says, "The open market for oats fosters greater communication among market participants – buyers, sellers and processors. The long and short of it is producers can take advantage of clearer market signals which helps them make better marketing decisions."

The bright future of oats is not the result of deregulation alone. Oats exports have increased as a result of the introduction of the Canada-U.S. Trade Agreement, NAFTA, as well as a decline in U.S. oat production.

"Northern European countries are dumping a lot of oats into the U.S. markets," Hodgetts points out. "One result is U.S. producers have backed away from production. This opens the door for us. We have the climate that produces the quality U.S. processors want. A lot of the pony oats I grow end up in California."

Says Meyer: "Open markets, producer savvy as well as superior production and quality have made Canada one of the largest exporters of oats in the world."

The impact of consumer demand has also brightened the future of oats. In the late 1980s the increase in consumer demand began to rise as the "oat bran craze" took off. During the craze, oat consumption in the United States rose dramatically. Per capita consumption of oat products increased for 1.68 kg in 1984 to 2.95 kg in 1990. **

Oat bran was added to muffins and cookies and even some potato chip labels sported the oat bran seal of approval. In the early 1990s, when studies found that oat bran only modestly reduced blood cholesterol, the fad ended only to re-emerge in the 1995 when the Quaker Oats Company made a proposal to the U.S. Federal Drug Agency to allow health claims on oat products.

Another oat craze did not emerge. In fact, in the U.S. it continues to decline from its peak in the 1990s. However, in Canada in recent years oat consumption has increased, with consumption in 2004 hitting 4.13 kg per capita. *

"Whole grain is the big push these days. Consumers are interested in the healthfulness of whole grain foods and oats fit the bill," says Dr. Nancy Ames, cereal chemist with Agriculture and Agri-Food Canada (AAFC) at the Cereal Research Centre in Winnipeg. "Oatmeal has always provided consumers with a whole grain product. Oats contains a number of health attributes in addition to the cholesterol-lowering fibre component."

Ames explains that the traditional methods of oat processing have allowed food manufacturers to use the whole oat as an ingredient or product without worrying about shelf stability. Oat is a relatively complete food in terms of nutrient composition, particularly in comparison to other cereal grains. Oat grains and whole grain oat products contain complex carbohydrates, low fat levels and have a balanced protein complement. An added benefit is increased satiety after eating a serving of oatmeal.

"The value of oat nutrition combined with the appealing toasty grain taste and the fact that western Canada is the major supplier of the oats into the U.S. are all reasons to celebrate this naturally functional food," says Ames.

With strong consumer demand behind it, oats can continue to brighten the financial prospects for Canadian oat producers. Consumer demand along with open market opportunities has already paid off: producers have gained increased revenue under the open market system according to the AAFRD research.

Value chain benefits are part of the package that stretches to grain traders, processors and end-users. These market participants have benefited from increased communication and direct interaction with producers. Results: improved logistics and grading standards, better translation of price signals and ability to source oats and specify quality attributes.

Oats are a prime example of how the open market can effectively respond to market forces. With some luck and pluck, a bigger and better value-added oat industry may be just around the corner. "The particular health interests these days – heart disease, diabetes, concerns about being overweight – could very well give oats a boost if we utilize this information and market it properly. I’d like to see further product development within Canada," says Ames.

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