The humble oat is an enigmatic crop. For starters, it has a split personality as it can be directed into one of two distinct commodities: grain or hay. Secondly, with both commodities, the market is only interested in the product that makes the grade, with cliff face pricing for seconds making the race for quality essential. Thirdly, the oat plant is frost resistant and hence highly tempting for the areas of the wheatbelt that see freshly hung washing turning solid overnight. The final aspect is that both commodities are on the edge of niche, and it’s this aspect which influences the attribute which perplexes growers most of all – price volatility.
Oaten grain has been a human food staple for centuries, but was initially considered a weed, only suitable for the odd beast of burden to graze. Those ancient varieties still live on as a weed (here’s to you, wild oats) but thanks to the wonders of grain breeding, humans have domesticized the oat kernel into something that has gradually become edible. (‘Gradual’, as the forerunner of that most famous oat dish, porridge, came from the Scots in the form of a cold gruel...). This year, global oat production tonnages are around 25mt but tradeable tonnages are much lower. USDA estimates the total global trade at 2.5mt with over half of that Canadian trade, which mostly goes straight to the US.
The WA oat industry primarily channelled local production to feed in the early days, with horses getting the best, and sheep and cattle getting the rest. It wasn’t until Quakers set up a food processing facility in the early nineties that the oats for food industry in WA started to hit its straps. Quakers didn’t invest millions to feed porridge and muesli bars to the few Western Australians rattling around the State, but to steer the locally grown oats away from horses to the vast number of consumers situated north of Australia. By removing the hull and kiln drying the resulting groat, the product is 30% lighter, saving freight costs whilst being stable enough to get through the journey and be stored. A win-win.
Quakers (Pepsico), Unilever (formerly Morton’s Grain) and CBH (through Blue Lake Milling), have all continued to expand local processing capacity and today over 250kt of oats is milled annually in WA. In addition, a thriving containerised oat market, combined with CBH stuffing the odd bulk vessel full, sends as much offshore again, mostly to processors in China. Behind the increased demand for oats is the facelift it has gained by way of an improved understanding of oats’ health benefits and new products such as oat milk, oat rice, and oat noodles.
But despite the advantages that come from having both local and overseas demand, oat prices have not proven to be resilient. The biggest issue is boom-bust pricing due to the limitation of processing capacity which is, in turn, limited by market size. In large production years (say over 600kt), once the usual suspects have filled their boots, oats have to travel further and compete harder with other origins resulting in the price required to make the trade worthwhile falling away quickly. A further issue is that, unlike barley and wheat, local feed mills do not provide a price floor, as oats are considered a gutless addition to the ration. These factors can result in a variance of over $200pt between the highest and lowest price offered over the course of a marketing year.
In situations like this, a grower that misses out on the high values may gaze at their flock of merinos and wonder whether there is a consolation prize through converting a few tonnes of oats to liveweight gain and wool. Invariably, the result is sub-optimal, meaning fewer hectares are sown the following year and prices spike again when production does not meet demand. The bust leads to a boom.
An alternative option for an oat grower nearing harvest is to flip script and swath the yet-to-ripen crop for oaten hay. When fodder prices are rising and oat grain prices falling, it makes sense to give up on the grain and bale the whole plant instead. But, of course, the hay grower with a dual purpose variety has the same option and can run to grain if oaten hay prices fall. This scenario is not unlikely as the hay market is similarly constrained, like the oat market.
In WA, by far the greatest volume of oaten hay is destined for export to the likes of Japan, China and Korea, at similar tonnages to grain oats. But the tyranny of distance means that export hay must be processed (ie, compacting the hay to make it denser than granny’s fruit cake) and capacity is limited, as are the markets. It doesn’t help that in early 2021 the Chinese government opted not to renew 25 out of 28 Australian export licences for hay. This export hay trade with China had been growing year on year and comprised a third of Australian oaten hay exports but now the overall export market is considerably thinner.
Looking back at 2022, oat grain prices prior to seeding were at average levels but received a kick when local processors realised that barley prices over $400pt were discouraging oat plantings. Buyers quickly lifted their forward contract prices to incentivise switching the seed in the hopper back to an Avena variety, and rumours abounded of $350-400pt being reached. This newfound commerciality saw around 290k ha of oats planted, with a projected forecast of 600kt to hit the bins (as per GIWA estimates) which is well over domestic capacity. Accordingly, once the local processors filled up their forward books, oat prices fell, bottoming out around $240pt.
Given the Chinese market scenario, oaten hay prices have been bumping along at low levels - around $220pt, but with Victorian hay crops getting washed away and good WA finishing conditions spurring on local yields, the hay market in WA received a fillip, encouraging a few growers to scythe down their uncontracted oat grain crops to capitalise. The expected tonnage of grain oats fell and up came the oat price, currently hovering around $300pt. Underlying all of this has been a volatile Aussie dollar that hasn’t made its mind up all year.
Although the unique switching capability of the dual purpose oat plant can flatten the pricing cliff for oats and hay, it can also accentuate the volatility for both crops, as seen this year. Like Goldilocks’ porridge, oat markets need to be ‘just right’. If too little or too much is produced, the seesaw continues.
