ash barley values in southern Alberta reached up to the $175 level mid September. Harvest delays along with continued export demand appear to be supporting the domestic cash market. Corn
futures appear to be making new highs resulting in stronger prices for DDGS. The USDA lowered the corn carryout on the recent report but it looks like we could see further tightening of the U. S. feed grain balance sheet longer term.
Statistics Canada estimated the total barley crop at 8.488 million mt. Given the current demand projections, the Canadian barley carryout has potential to drop to 1.2 million mt, the lowest in 10 years. Barley harvest in Western Canada was only 30 per cent complete in mid September. Additional delays could shrink the barley crop and we may see quality deterioration.
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The function of the barley market is to ration demand away from offshore channels and encourage imports of U. S. corn and DDGS. Western Canada needs to import 1.2 to 1.6 million mt of DDGS in the 2010-11 crop year; therefore, we need to see domestic barley prices trade at a $10 to $15 premium over imported DDGS. Prices of DDGS have rallied approximately $30 over the past month and are now trading at a premium to local barley in the major cattle feeding regions. If we back off freight from Middle Eastern Destinations, barley in Southern Alberta should trade in the range of $180 to $190. Therefore, I feel domestic prices should trade at a $10 to $15 premium over export values.
The USDA decreased their corn production number on their September report resulting in a lower carryout for 2010-11. We feel the carryout will shrink further due to lower production estimates and growing export demand. The USDA average yield was 162.5 bushels per acre but early yield estimates suggest that further decreases may be coming on subsequent reports. Many analysts in the U. S. are expecting a final corn crop around 13 billion bushels, down from the current USDA estimate of 13.165 billion bushels.
I’ve had a few calls from producers in regards to the potentially large feed wheat crop coming in Western Canada. This is a “wild card” because exports may drain off excessive supplies longer term. Adverse harvest weather may provide temporary pressure on the Canadian feed grains market but prices could strengthen over the winter given the current export projection.
World events continue to favour higher prices for coarse and cereal grains. Continued problems in Russia are delaying winter wheat seedings and it is questionable if all of this crop will be planted. U. S. corn exports are exceeding expectations and the USDA will likely increase their projection on subsequent reports resulting in a lower corn carryout. Large exports confirm the current price structure of the feed grains complex in North America. The world is no longer comfortable with past stock levels of coarse and cereal grains. Changes in supply tend to have a large effect on price, as we saw in the wheat market this past summer.
It looks like we will see an increase in U. S. winter wheat seedings this fall. Therefore, the function of the corn market will be to encourage acreage next spring. This will sustain the corn market into June of 2011, or until traders are comfortable with the crop size.
At the time of writing this article, the speculative investment funds are long an estimated 430,000 contracts in corn. We continue to see more investment money flowing into the corn market. Investors are not satisfied with returns in the equity markets. While the speculative position is at a record long in corn and wheat, it is difficult to say that this investment money inflow will stop in the short term.
GeraldKlassenisacommoditymarketanalystinWinnipegand maintainsaninterestinthefamilyfeedlotinsouthernAlberta.He writesanin-depthbiweeklycommentarycalledCanadianFeedlot andCattleMarketAnalysisforcattleproducersinWestern Canada.Hecanbereachedbyemailat [email protected] or204- 287-8268forquestionsorcomments.
Thematerialcontainedhereinisforinformationpurposesonly andisnottobeconstruedasanofferforthesaleorpurchaseof securities,optionsand/orfuturesorfuturesoptionscontracts. Whiletheinformationinthispublicationcannotbeguaranteed, itwasobtainedfromsourcesbelievedtobereliable.Therisk oflossinfuturestradingcanbesubstantial.Thearticleisan opiniononlyandmaynotbeaccurateaboutmarketdirection inthefuture.Donotusethisinformationtomakebuyingor sellingdecision.Thisoutlookmaybewrongandcouldcause adversefinancialconsequencesifdecisionsarebasedonthis information.
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Western Canada needs to import 1.2 to 1.6 million mt of DDGS in the 2010-11 crop year; therefore, we need to see domestic barley prices trade at a $10 to $15 premium over imported DDG
