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Oats boom warning

Jo FulwoodThe West Australian
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Western Australia's oat deliveries into the CBH system could reach 315,000 tonnes this harvest, with potential for an additional 600,000 to be grown by 2020.

But CBH Commercial Manager Tom Puddy cautioned that planting wall-to-wall oats in coming seasons would further exacerbate the boom-bust scenario so typical of WA's oat industry in previous years.

Speaking at the Grains Industry Association of WA Oats forum in Narrogin last week, Mr Puddy said while the price for oats was currently strong, it was critical that production grew in concert with growth in demand to ensure longer term viability and price stability.

Mr Puddy said the international demand for human consumption oats would continue to grow, but this season's competitive market and strong pricing had the potential to over stimulate production.

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"This is obviously a concern, however the long-term fundamentals for oat demand are optimistic," he said.

"If we go out and increase production by 20 per cent next year, the market may not be there. I would caution growers not to be overly stimulated by this season's market signals."

Mr Puddy said current oat pricing was a result of consecutive year on year increases of 10-15 per cent in Asian demand for human consumption product.

"So a shortage of production against a tight S&D increases the price, and this is what we have seen," he said.

"We are coming into a good harvest, however the prices may continue to remain firm while new players are coming into the market, trying to establish traction.

"But there will still be strong demand in Asia and I think we will still see a shortfall of supply in some new mills."

But Mr Puddy predicted oat pricing may come under pressure post the 2015-16 harvest once the S&D numbers had become more transparent to the market.

He said international competitors, such as Europe, Canada and Chile, will continue to have an influence on Australian pricing.

"Canada is a large producer but it also has a large domestic demand into the USA," he said.

"When Canada has a big crop, it does push product into the Asian markets, effectively competing against the Australian sales.

"Chile is an emerging competitor and the crops there look just as good as Australian crops but they do have a freight disadvantage into Asia.

"So, if we put our price too high there are other countries that will come into our market and that's where you get the boom-bust scenario."

Mr Puddy said CBH's recent acquisition of the Blue Lake Miling operation, with mills in both South Australia and Victoria, was a signal of the bulk handler's view of the future of domestic oat milling assets and the demand for Australian processed oats into the Asian market.

"We have a strong view on oats in WA, so the Blue Lake Milling operation is about acquiring a good business that understands the processing and retailing side of the industry," he said.

"This is a long-term strategy to build capacity and connect that to WA growers."

GIWA Oats Council chairman Will Carrington-Jones said demand for human consumption oats was driving the upturn in the industry.

"We have gone from horses to human consumption with the demand strongly coming out of South-east Asia, and future demand for our product can only grow," he said.

Mr Carrington-Jones said Australia's major competitor in terms of quality human consumption oats was Finland. But he said Australian oats, as export hay and fodder, were still in strong demand in Japan, China and other parts of Asia.

"The export hay and fodder industry is supporting a lot of feedlots in Asia where it's cheaper to bring in both the cattle and the feed than it is to important dairy products from Australia," he said.

Mr Carrington-Jones said there had been a significant amount of investment in the domestic oats industry across the State, signalling confidence in the industry, particularly in regard to domestic processing.

"We've seen UniGrain come into the State and we know it has further expansion plans, and Quaker Oats has a new mill about to be opened later in the year," he said.

"We have also seen forward contracting for oats which we have never had before at this time of the season.

"CBH has purchased the Blue Lake Milling Operation and we ask the question of them - are they considering building something here in Western Australia?"

_Mr Carrington-Jones said new oat segregations would need to be considered this harvest at sites in non-traditional oat growing areas such as Corrigin, Quairading and Lake King. _

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