Shrinking oat stocks may add to rising food costs

Fri Oct 7, 2011 2:17pm EDT
 
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By Rod Nickel

WINNIPEG, Manitoba (Reuters) - North American oat stocks look to fall to a near-record low next year, tightening milling supplies used in breakfast cereals such as Cheerios even as food companies struggle to contain input costs.

Relatively high prices of commodities including corn, sugar and cocoa have for the past year left food companies facing the dilemma of whether to absorb the costs or pass them to consumers.

The outlook for thin oat supplies next year and the predictable bounce in prices, however, is due to how relatively cheap the grain is currently.

(Graphic of oat stocks and prices: link.reuters.com/par34s)

Oat prices have tumbled about 18 percent this year and look to strain supplies in two ways.

Their low cost may lift demand from the U.S. horse-feeding industry that is already eager to avoid paying a hefty premium for corn, another feed grain, said oat industry analyst Randy Strychar of Oatinsight.com.

Oats have also lost price ground to canola and wheat -- the two biggest Canadian crops -- and may fall out of favor with farmers deciding in early 2012 what they will plant, he said.

"It doesn't look good for oats next year," Strychar said.   Continued...

 
<p>Local farmer Pat Hutchinson cuts his oat crop north of Cochrane, October 18, 2002. After Hutchinson combines the crop, about 90 acres, he will complete his harvest for 2002. REUTERS/Patrick Price</p>