The feed grains complex has been volatile over the past month as the market moves through a transition phase. During the second week of May, southern Alberta feedlots were buying feed barley in the range of $255/mt to $265/mt delivered while central Alberta operations were making purchases from $240/mt to $250/mt delivered.
For September delivery, the market in southern Alberta is quoted from $200/mt to $210/mt delivered. The Canadian barley carry-out for the 2018-19 crop year is projected to come in near 1.1 million mt which is historically tight; however, for the 2019-20 crop year, the carry-out has potential to reach 2.6 million mt, which is somewhat burdensome.
Canadian farmers are expected to increase barley acreage this year. This increase comes at the same time as U.S. farmers plant more corn acres. Over the past month, I’ve received many inquiries with regard to price outlook for barley for the upcoming crop year; therefore, I thought this would be an opportune time to provide an overview of the expected fundamentals.
Canadian farmers intend to seed 7.2 million acres of barley this spring, up from 6.5 million acres last year. Using a five-year average yield and a traditional abandonment rate, production has the potential to reach 9.6 million mt, up from the 2018 output of 8.4 million mt. If we add the carry-in stocks from the previous crop year, total beginning supplies at the start of 2019-20 are projected to be 10.8 million mt, up from the 2018-19 starting level of 9.7 million mt.
Canadian barley exports are expected to experience a sharp year-over-year decline during the 2019-20 crop year. Higher prices in Western Canada resulted in a year-over-year increase in acreage. It’s important to remember that every farmer in the world is receiving the same price signal which is to increase production. Europe, Ukraine, Russia and Australia are all expected to increase barley production in the 2019-20 crop year. Ocean freight rates have also edged higher which favours smaller volumes over shorter distances. Therefore, Canadian barley will be uncompetitive into Middle Eastern destinations. Political issues continue to eliminate Canadian barley into Saudi Arabia. China has been a major buyer of Canadian barley during 2018-19, but this demand is also uncertain due to the adverse relationship between Ottawa and Beijing over the arrest of Huawei executive Meng Wanzhou. For 2019-20, I’m projecting barley exports at 1.2 million mt, which is probably optimistic.
Canadian domestic processing consumes about 1.0 million mt each year and seed usage is around 250,000 mt. I’m factoring in a carry-out of 2.6 million mt which allows for 5.9 million mt for domestic feed usage. Feed usage always increases when the carry-out moves above the five-year average. The function of the barley market is to encourage demand through lower prices for the 2019-20 crop year.
I mentioned that Canadian and world farmers all received the same price signal for barley which was to encourage acreage. It’s important to remember that the same message was sent out for corn due to the lower returns per acre in the oilseed and soybean complex. U.S. farmers intend to plant 92.8 million acres of corn this spring, up from the 2018 seeded area of 89.1 million acres. U.S. corn exports are also expected to experience a year-over-year decline due to larger corn production in South America. Combined corn production from Brazil and Argentine will likely finish 27 million mt above year-ago levels.
In conclusion, larger Canadian production along with lower exports will cause the barley carry-out to build in 2019-20. The world coarse grain complex is also contending with a year-over-year increase in corn and barley production. I would not be surprised to see southern Alberta trade sub-$190/mt during the harvest period. This will provide lower input costs in the feedlot sector and should be supportive for feeder cattle prices this fall.