Oats Costing Most Since 2008 as Canada Rail Delays Slow Exports

Feb 07, 2014 1:44 am ET

Feb. 7 (Bloomberg) -- Oat futures climbed to the highest since 2008 after jumping the maximum allowed by the Chicago Board of Trade yesterday as a rail backlog slows supplies from Canada, the world’s biggest exporter.

Grain shipments in Canada are about nine weeks behind schedule after farmers harvested a bumper crop, said Wade Sobkowich, executive director of the Western Grain Elevator Association. There are 45,000 grain-car orders that have not been filled on the Prairies, he said. As of Jan. 26, the country shipped 504,280 metric tons of oats since Aug. 1, down 21 percent from a year earlier, government data show.

Record crops in Canada, the world’s top canola grower and second-largest wheat exporter, are overwhelming the country’s rail system, creating a shortage of grain cars and slowing shipments to foreign buyers. Last month, Agriculture Minister Gerry Ritz pledged C$1.5 million ($1.36 million) to reduce delays at ports and railways. The U.S. imported 53 percent of the oats it consumed in the 12 months that ended May 31, with most of the supplies coming from Canada. The backlog may raise costs to make Cheerios cereal at General Mills Inc.

“There’s some pain among millers that were not prepared for the slowdown in imports or jump in prices,” Dan Anderson, a grain broker and analyst for ED&F Man Capital LLC in Chicago, said in a telephone interview. “It’s all about the competition for rail space and frozen rivers and lakes that have restricted Canadian oat imports. Most of the oats are for human consumption, so demand is inelastic.”

2014 Rally

Oat futures for March delivery gained as much as 2.4 percent to $4.6725 a bushel today, the highest since July 14, 2008. Futures yesterday jumped the exchange maximum 20 cents. Prices climbed 15 percent in January, the biggest monthly gain since June 2012 and are up 29.5 percent this year.

Prices rose to a premium versus corn for the first time since 2002, increasing costs to make cereal, snackfoods and energy bars. Pepsi Co. may also see higher expenses for its Quaker Oats division. Corn for March delivery lost 0.3 percent to $4.415 a bushel in Chicago.

Boosting the flow of Canadian oats will take several months, and getting supplies from Europe is also taking longer than expected, which signals continued tight supplies in the U.S., Shawn McCambridge, the senior grain analyst for Jefferies Bache LLC in Chicago, said in a note to clients.

“When prioritizing which grain receives railcars, grains are not at the top of the list and oats is not at the top of the grains list,” said McCambridge. “The general saying in this part of the industry is the last thing that is run through the mill before supplies run out is the buyer, because it is very costly to shut a processing facility down.”

--With assistance from Phoebe Sedgman in Melbourne. Editors: Joe Richter, James Poole