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Barley Price Outlook

Cash barley values in the Lethbridge area have been hovering at $155/mt delivered in January. The barley market has been functioning to encourage demand as the market adjusts to the larger barley and wheat crops in Western Canada. Offshore movement has been limited due to tight fobbing capacity on the West Coast and rail delays have also contributed to the slower export program. Given the larger wheat crop, we’ve also seen lower-quality milling wheat move into feed channels as the elevator system is virtually plugged. Farmers who want to clean up piles of wheat in temporary storage are being forced to move wheat into the domestic feed market.

Feedlot margins have been in positive territory given the lower feed grain prices and feedlot managers have been anxious to book their forward requirements and lock in the margin structure. Lower feed grain prices have also caused feeder cattle values to move to historical highs. I’ve had many inquiries from farmers and cattle producers regarding the price outlook for feed barley for the remainder of the crop year so I thought this would be a good time to review the fundamentals and look at the possible price scenario moving forward.

Statistics Canada estimated the barley crop at 10.2 million mt, which is up two million mt from last year and very similar to the 10-year average production of 10.3 million mt. The average Canadian yield was a whopping 71.7 bushels per acre, compared to 54.1 bushels per acre in 2012 and also sharply higher than the 10-year average of 57.5 bushels per acre. The market definitely has some work to do in order to move these larger supplies.

Looking at the demand scenario, I’m projecting Canadian barley exports at 1.5 million mt which includes feed and malt barley. However, this may be optimistic. Total barley crop year to date exports from August 1 to January 5 were only 463,000 mt, which compares to 707,000 mt for the same period in 2012-13. Given the current situation on the West Coast and world barley situation, it will be hard to reach the 1.5-million-mt projection. At this time, Australia and Argentine barley is more competitive on the world market and major importers such as Saudi Arabia have their nearby requirements covered. Secondly, fobbing capacity is basically booked up on the West Coast until summer so additional sales will be hard to materialize.

Domestic demand is expected to be about the same as last year resulting in a 2013-14 carry-out near 3.1 million mt, which is one million mt above the 10-year average and up from the tight fundamental scenario last year when the carry-out was only 1.3 million mt.

The 2013 all-Canadian wheat crop was record large at 37.5 million mt, up from 27.2 million mt in 2012. It is inevitable that the commercial elevator system will have a difficult time moving this large crop, even running at full capacity. Therefore, as I mentioned earlier wheat will aggressively move into feed channels for the remainder of the crop year as farmers liquidate stocks prior to new crop. Currently, feed wheat is trading at the same price as barley in Lethbridge, displacing some barley demand.

From the Grainews website: Klassen: Feeder market sets new records

Looking forward at 2014-15, Canadian barley acres are expected to be slightly lower next year due to lower returns per acre compared to other crops. The market will not be as sensitive to weather and overall growing conditions due to the large carry-out from 2013-14. I’m using a yield forecast of 60 bushels per acre, which is slightly higher than the 10-year average. Production is expected to drop to 8.4 million mt in 2014 but notice that overall supplies will be very similar to 2013-14 at 11.5 million mt. Therefore, the market will once again function to encourage offshore movement.

I’m expecting barley prices to remain under pressure for the remainder of the 2013-14 crop year due to the large supplies overhanging the market and limited offshore movement. The caveat longer term is the U.S. corn situation. Without going into detail, the USDA slightly tightened the fundamentals for the 2013-14 crop year and most analysts are expecting a year-over-year decline in U.S. corn acres. The corn market will be sensitive to growing conditions during the summer IF we see a sharper-than-expected decline in U.S. corn-seeded area. However, this is something to watch longer term but remember the world is coming off record corn production from 2013. c

Gerald Klassen analyses markets in Winnipeg and also maintains an interest in the family feedlot in southern Alberta. He can be reached at [email protected]

About the author

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Jerry Klassen

Jerry Klassen manages the Canadian office of Swiss-based grain 
trader GAP SA Grains and Produits Ltd., and is president and founder 
of Resilient Capital specializing in proprietary commodity futures trading and market analysis. Klassen consults with feedlots on risk management and writes a weekly cattle market commentary. 
He can be reached at 204-504-8339.

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