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Oat Prices Losing Ground, Seen Limiting Canada Area

Canadian cash oat prices have slipped versus competitors like canola and wheat, a trend that could limit plantings in Western Canada this spring and have profound implications for supplies next year of the grain used in breakfast cereals and snack bars, analysts say.

Canada is by far the world's biggest exporter of oats, but flooding last year slashed the country's crop production to a 19-year low.

The prospect of a smaller than expected production increase this year would keep Canadian 2011/12 ending stocks small for a second straight year and cause a supply scramble for U.S. cereal makers like General Mills (GIS.N), Quaker Oats (PEP.N), Ralcorp Holdings Inc (RAH.N) and Kellogg Co (K.N), said analyst Randy Strychar.

Cash oat prices in Saskatchewan, the top growing province, have slid since October to 38 percent from 42 percent of canola values and also slipped against flax, wheat and barley, said Strychar, who is based in Vancouver, British Columbia.

On U.S. futures markets, the nearby Chicago oat contract Oc1 is trading around US$5.51 per bushel less than front-month Minneapolis spring wheat MWEc1, the biggest discount in nearly 2-1/2 years.

Factoring in those prices and input costs, oats look to be much less profitable this year than crop competitors spring wheat, canola and flax, especially in the key black soil region of Saskatchewan, Strychar said.

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