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Feed grains outlook remains bearish

Market Talk with Jerry Klassen

It’s that time of year when I receive many inquiries regarding the feed grain outlook for the upcoming crop year. At the time of writing this article, Lethbridge area feedlots were buying feed barley in the range of $240/mt to $250/mt delivered for nearby delivery while Red Deer operations were showing bids for $228/mt to $235/mt delivered. For new crop, the Lethbridge area barley market was quoted in the range of $215 to $220 for September and October delivery.

While barley prices have been firm, U.S. corn has been trading into southern Alberta in the range of $220/mt to $230/mt for July and August delivery. In this issue, I’m going to discuss the projected fundamentals for Canadian feed barley and U.S. corn.

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According to Statistics Canada, Canadian farmers seeded 7.5 million acres of barley this past spring, up marginally from the 2019 area of 7.4 million acres and up from the five-year average of 6.5 million acres. Conditions are excellent across Western Canada and I’m projecting an average yield of 71 bushels per acre. This would result in a crop size of 10.7 million mt, up from the 2019 output of 10.4 million mt and up from the five-year average of 8.7 million mt. If we factor in the larger beginning stocks, total supplies at the start of the 2020-21 crop year are projected to be 12.5 million mt, compared to 11.3 million mt on August 1, 2019, and up from the five-year average of 10.2 million mt.

The market will function to encourage demand. I’m projecting exports at 2.5 million mt. The media is hyping up Canadian barley exports to China for 2020-21 due to the Chinese tariffs of 80 per cent on Australian barley. The bulk of Australian barley sold to China was for malt purposes. Most malting companies in China are state-owned.

Canadian malt barley has about 800,000 mt of inelastic demand in China but additional volume needs to be price competitive. Don’t think that China will drain Canada of barley supplies as Canadian malt and feed barley typically trades above world values for most of the year. We’ve included barley production estimates (in million mt) from major exporters with the year-ago crop in brackets: Europe 64.1 (63.0), Ukraine 9.4 (9.5), Russia 17.3 (20.0), U.S. 4.0 (3.7), Australia 10.2 (9.0).

There is no shortage of barley amongst major exporters. The Chinese tariffs on Australian barley will alter trade flows and, keep in mind, Canada is not in good political standing with China.

Canadian barley ending stocks for 2020-21 are forecasted to come in at 3.0 million mt, up from the 2019-20 projection of 1.7 million mt and up from the five-year average of 1.5 million mt. This fundamental structure suggests that barley prices will be under $210/mt in Lethbridge during the harvest period.

Corn futures experienced a minor bounce after the USDA acreage report on June 30. U.S. farmers planted 92.0 million acres which was down from the March survey of 97.0 million acres but up from the 2019 area of 89.7 million acres. The corn market incorporated a risk premium in early July due to the uncertainty in production. Hot and dry weather forecasts resulted in yield uncertainty.

However, the USDA didn’t change their yield projection on the report and left it at 178.5, which is a weather-adjusted trend forecast. U.S. corn production is now projected to reach 381 million mt. While this is down from the June estimate of 406 million mt, it’s still well above last year’s output of 345 million mt. I’m expecting U.S. corn to trade into southern Alberta throughout the 2020-21 crop year because U.S. corn supplies will be burdensome. This will also limit the upside in feed barley.

The year-over-year increase in Canadian feed barley and U.S. corn production will be supportive for feeder cattle prices. Feedlot operators are starting to factor in the potential for lower input costs on the next round of feeding. New crop feed barley prices are expected to grind lower as the new crop harvest approaches. The main factor weighing on the world coarse grain markets will be the U.S. corn supply.

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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