The recent rally in the barley market has caught many cattle producers by surprise. For a brief period in midsummer, Lethbridge-area feedlots saw barley prices drop under $200/mt delivered; however, at the time of writing this article in mid-September, feed barley delivered to southern Alberta was trading in the range of $220/mt to $230/mt.
Canadian barley production will be down from earlier estimates and down from year-ago levels. Below-normal precipitation and above-normal temperatures caused the barley crop to deteriorate during July and August. While supplies have been shrinking, export projections have increased due to unrelenting demand from China for Canadian barley. Outside influences have also been supportive with the corn futures rallying US$0.40/bushel. Lethbridge-area feedlots have seen prices of imported U.S. corn strengthen by nearly $25/mt over the past month.
I’ve received many inquiries from cattle producers with regard to the outlook for feed barley prices; therefore, I thought this would be an opportune time to discuss how the barley fundamentals have changed over the past couple of months.
There have been two major changes to the supply situation. First, Statistics Canada’s July 31 stocks report had barley supplies at 1.0 million mt. The carry-out for the 2019-20 crop year was sharply lower than earlier trade estimates which ranged from 1.5 million mt to 2.0 million mt. Second, Statistics Canada’s model-based crop survey, which was released on September 14, had Canadian barley production at 10.3 million mt. At the end of July, many traders and analysts were expecting production to reach over 11.0 million mt. Total supplies for the 2020-21 crop year are now projected to be 11.3 million mt, which is down about 1.5 million mt from traders’ expectations earlier in the summer.
Export demand, mainly from China, has been a shock to the market. This has occurred for two reasons. First, China implemented tariffs on Australian barley back in May. Without going into detail, there are only four countries that can ship barley to China due to phytosanitary conditions. Australia, Canada, France and Ukraine are the main suppliers. Now that Australia is out of the picture, the focus is on Canada and France for malting barley while Ukraine also competes in the feed category. Recently, we’ve seen a few cargoes from Argentina also trade into China but this isn’t common.
The second reason is because China’s corn crop suffered damage from three typhoons in the provinces of Heilongjiang, Jilin, Liaoning and the Inner Mongolia region during late August and early September. Apparently, China has large corn stocks in reserve but the quality is uncertain. Corn and feed grain prices have rallied sharply in China, enhancing import demand for corn and feed barley. At this time, I’m projecting Canadian barley exports for the 2020-21 crop year to reach 3.2 million mt. In the August issue, I only had exports at 2.5 million mt.
Cattle-on-feed inventories in Alberta and Saskatchewan have been running 15 per cent to 17 per cent above the five-year average throughout the spring and summer. It’s interesting to note that Statistics Canada had domestic feed usage for the 2019-20 crop year at 6.9 million mt, up about 18 per cent from the five-year average. For the 2020-21 crop year, we’re estimating domestic feed usage at 6.4 million mt. Cattle-on-feed inventories will remain sharply above year-ago levels until March 2021.
I’m now estimating the 2020-21 Canadian barley carry-out to finish around 750,000 mt, which is historically tight. The barley market will function to ration demand. Domestic prices in the main feeding regions of Alberta need to trade above export values so that offshore movement slows down. Second, the barley market needs to trade high enough so that feedlots in Alberta substitute barley with other feed grains. Barley prices will need to trade higher to encourage U.S. corn imports into southern Alberta. Values may also trade high enough so that milling quality wheat moves into feed channels.
At the time of writing this article, elevators in central Saskatchewan were showing bids at $195/mt delivered. Grain companies are being aggressive in the non-major feeding regions to secure supplies for their export sales. The Lethbridge barley market was trading from $235/mt to $245/mt for November and December delivery. We’re seeing the Lethbridge barley trade above export values in the deferred positions. There is a bidding war going on between the export and domestic markets. The barley market is bullish for the time being. Chinese demand will be key to determining the upside potential.