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Feed barley outlook

Market Talk with Jerry Klassen

I’ve received many inquiries from feedlot and backgrounding operators regarding the price outlook for feed barley. The Western Canadian feed grains complex made seasonal lows during September of 2019. Lethbridge area feedlots were buying feed barley at just under $200/mt delivered.

However, the market started to ratchet higher during October. Adverse weather and the delayed harvest caused the market to strengthen by $20/mt to $25/mt. Since November, Western Canadian feed barley prices have been trading in a narrow range.

At the time of writing this article in early January, Lethbridge area feedlots were purchasing barley in the range of $228/mt to $236/mt while central Alberta operations were showing bids from $210/mt to $225/mt delivered. At this time of year, it’s important that cattle producers have a good idea of the fundamental structure and price ideas for the next six- to eight-month period.

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According to Statistics Canada, the average barley yield was 70.8 bushels per acre, up from last year’s average yield of 65.0 bushels per acre. Despite the wet fall and delayed harvest, production was higher than anticipated. The Canadian barley crop was estimated at 10.4 million mt, up from last year’s production of 8.4 million mt and up from the five-year average output of 8.5 million mt.

Canadian barley exports are projected to reach 2.0 million mt for the 2019-20 crop year, down from 2.4 million mt during the 2018-19 campaign. Canadian crop year-to-date exports for the week ending December 15 were 860,000 mt, down from the year-ago pace of 914,400 mt. China is once again taking the bulk of Canadian barley exports. The Chinese anti-dumping investigation into Australian barley has been extended, providing an advantage for Canadian barley. Although European and Black Sea barley is more competitive, Chinese malting companies favour Canadian barley, even if the specifications are not quite up to traditional malt standards.

Alberta and Saskatchewan cattle-on-feed inventories have been running 15 per cent to 20 per cent above the five-year average, resulting in greater feed usage. Canadian feed barley is lower priced than imported U.S. corn this year, so the market is not experiencing the substitution effect like last year. Feed wheat has been trading at similar prices to feed barley in Alberta. The quality of the wheat crop was better than anticipated and we’re not seeing as much wheat move into domestic feed channels. I’m projecting domestic feed usage to come in at 6.0 million mt for the 2019-20 crop year, up from the year-ago consumption of 5.3 million mt and up from the five-year average of 5.7 million mt.

Domestic seed and food usage is similar every year; therefore, the 2019-20 carry-out is projected to come in near 2.2 million mt, up sharply from the 2018-19 ending stocks of 0.9 million mt and up from the five-year average carry-out of 1.6 million mt.

This size of carry-out is considered neutral for the market. The export market will keep domestic prices well-supported at the current levels. If domestic prices drop by $15/mt to $20/mt, we would see a sharp increase in offshore movement. On the flip side, farmer selling tends to increase during January through March and then slow down during April and May. There is potential to see the feed barley market strengthen by $20/mt to $30/mt during road bans and the seeding period.

I know it’s early but at this time, traders in Winnipeg believe Canadian barley acres for the 2020 crop year will be very similar to 2019. Using a five-year average yield, 2020 barley production could reach 10.1 million mt. Given the larger carry-in stocks, total supplies at the start of the 2020-21 crop year could reach 12.3 million mt, up one million mt from the 2019-20 total beginning stocks of 11.3 million mt. The fundamental outlook for the fall of 2020 is extremely bearish.

I’m expecting Lethbridge feed barley prices to move up to the range of $250/mt to $260/mt during the spring seeding rally. Once the crop is well established and the acreage is certain, the market will function to encourage demand through lower prices. During the fall of 2020, I wouldn’t be surprised to see feed barley trade sub $200/mt in southern Alberta. Lower feed barley prices during the 2020-21 campaign will enhance feeder cattle values.

About the author

Columnist

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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