Oat prices surge as Canadian output drops following delayed harvest

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Granola and oatmeal lovers in the United States may need to prepare for some sticker shock.

Oat production in Canada, the world's biggest exporter, is set to plunge after rain and snow delayed harvests across the Prairie provinces.

Because the crop spent too much time in wet fields, grain quality declined, which means more will end up as livestock feed and less will be suitable for making food products like Cheerios breakfast cereal.

Since the end of September, when the extent of the damage began to emerge, prices have rebounded from a seven-year low, staging the biggest harvest-season rally in a decade.

More than 90 per cent of Canada's oat exports are sent to the United States, where companies including General Mills Inc. and Quaker Oats Co. use them in everything from snack bars to cereals.

"You can't make a Cheerio out of barley," Randy Strychar, the president of Oatinformation.com, an industry researcher based in Vancouver, said. "It's going to be tight."

Production will drop 13 per cent to 2.976 million metric tonnes after lingering harvest delays, Agriculture and Agri-Food Canada said Nov. 17.

Mr. Strychar says the decline may be as much as 20 per cent because farmers were so far behind the normal pace of harvesting.

As of Nov. 21, farmers in Saskatchewan still hadn't collected 6 per cent of their crop, according to the province's agriculture ministry.

Alberta had 27 per cent unharvested as of Nov. 15, data from the provincial government show.

A year earlier, the oat harvest was mostly completed by early November.

Oat futures on the Chicago Board of Trade were up 25 percent from the end of September through Nov. 24, the biggest rally for the period since 2006.

Before the harvest delays, prices on Sept. 13 touched $1.71 (U.S.) a bushel, the lowest since February, 2009.

The most active futures contract closed Wednesday at $2.23 1/4.

Canada oat exports will drop to a four-year low of 1.5 million tonnes in the year that began Oct. 1, down from 1.6 million tonnes a year earlier, the U.S. Department of Agriculture estimates.

American food processors are dependent upon Canadian supply because U.S. farmers don't grow enough, which means they import about 57 per cent of what they use.

General Mills, the Minneapolis-based company that makes products including Nature Valley granola bars and Cheerios cereal, declined to comment.

Chicago-based Quaker Oats, a unit of PepsiCo Inc. that produces its eponymous hot cereals and granola bars, didn't respond to a request for comment.

Even if farmers managed to complete the harvest this week, the grain won't be usable for food makers.

The U.S. may have to import more from northern Europe and draw down existing inventories to manage the supply rout, according to Mr. Strychar at oatinformation.com.

It may take a few months before oat buyers start to see higher costs because supplies had been ample from earlier harvests and prices were low, Dave Sanders, a Vancouver, Wash.-based vice-president for Cereal Byproducts Co., said.

The company, which gets about 80 per cent of its oats from Canada, markets 10,000 tons annually for use by food makers and producers of pet food.

"After the first of the year, we'll start seeing some increases," Mr. Sanders said.

"It will be a significant change in the market. There is still a lot of oats being stored on-farm from last year's crop. That will temper the price a little bit."