The feed barley market has been relatively flat throughout the winter. During the last week of January, Lethbridge-area feedlots were buying feed barley in the range of $255/mt to $260/mt delivered. At the same time, central Alberta feedlots were making purchases from $245/mt to $250/mt. Barley stocks are projected to drop to historical lows by the end of the 2018-19 crop year. Therefore, the domestic Canadian barley market will function to ration demand. Alberta barley prices will have to trade at a premium to world values to slow the export pace. Second, the barley market will stay firm to encourage the use of alternate feed grains such as wheat and U.S. corn.
I’ve received many inquiries over the past month about the feed barley price outlook. Therefore, I thought this would be a good time to provide readers with a fundamental overview.
Statistics Canada estimated the 2018 barley crop at 8.4 million mt, which was up from the 2017 output of 7.9 million mt, but slightly lower than the five-year average of 8.5 million mt. Despite the year-over-year increase in barley production, it’s important to realize that beginning supplies are actually below year-ago levels due to the decline in carry-in stocks. Total beginning supplies are estimated at 9.7 million mt, down from last year’s stocks of 10.1 million mt.
Crop year-to-date exports for the week ending January 25 were 1.2 million mt, compared to 0.8 million mt for the same time frame last year. The bulk of this demand is coming from China. There’s also been some business to the Middle East (excluding-Saudi Arabia). The reason for increased exports to China is twofold. First, Australia’s crop was down from last year due to the drought. Second, China is conducting an anti-dumping investigation into Australian barley. A certain amount of Chinese demand for Canadian malt barley is inelastic which requires about 700,000 mt. This year, we’ve seen exports beyond the inelastic demand because Canadian malt and feed barley were priced competitively. Currently, Ukrainian and French feed barley is more competitive so additional business may be limited. I’m projecting Canadian barley exports will reach 2.3 million mt, which is up from 2.1 million mt last year and up from the five-year average of 1.6 millon mt.
Domestic demand for seed and human processing or industrial is about the same every year at 0.950 million mt. This leaves approximately 5.0 million mt for domestic feed usage. The five-year average for feed usage is 5.7 million mt. During the 2014-15 crop year, there was a lower-quality wheat crop which resulted in additional durum and wheat feeding. The 2018 durum and wheat crops were of fairly decent quality. We are seeing No.1 and No. 2 durum and hard red spring wheat move into feed channels in southern Alberta because the domestic feed market is higher than export values. This will likely change in the latter half of the crop year. It appears that Western Canada will have to import about 500,000 mt of U.S. corn. This will make the feed barley market highly correlated with imported U.S. corn values. The 2018-19 carry-out has potential to drop to 1.1 million mt which is slightly lower than last year and down from the five-year average carry-out of 1.6 million mt.
The barley market needs to encourage acreage for 2019. This requires that returns per acre need to be higher than other crops. At this stage, preliminary trade estimates are projecting a year-over-year acreage increase of six per cent. Using a five-year average yield of 68.4 bushels per acre, production has potential to reach 9.3 million mt. It’s important to realize that every farmer in the world is receiving the same price signal. A year-over-year increase in barley production is expected in Russia, Ukraine, Europe and Australia. Canadian exports will be down sharply in the 2019-20 crop year. The barley market is expected to peak in May. From June through September, expect feed barley prices to trend lower. The 2019-20 carry-out is expected to finish at 2.2 million mt. Unless Western Canada experiences a drought, supplies will be quite burdensome during the fall.