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Feed grains outlook

Market Talk with Jerry Klassen

I’ve received many inquiries regarding the feed grain outlook for the 2020-21 crop year. Grass cattle and calves have been relatively firm over the past month despite the COVID-19 pandemic. It appears that cattle producers are banking on a very bearish corn and barley market for the upcoming fall and winter. Therefore, I thought this would be a good time to provide a fundamental overview of U.S. corn and Canadian barley.

Included is a U.S. Corn Supply and Demand table (see above) which I will briefly discuss. For the 2019-20 crop year, my estimate is not much different than the USDA’s projection. The recent drop in crude oil prices has resulted in lower ethanol demand and many plants are closing temporarily or lowering their output; therefore, my projection for ethanol usage is down about 300 million bushels from the USDA number. Therefore, I’m estimating the 2019-20 corn carry-out at 2.2 billion bushels compared to the USDA estimate of 1.9 billion bushels and the five-year average of 2.0 billion bushels.

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U.S. farmers are expected to plant 97.0 million acres of corn this year, up 8.3 million from the 2019 seeded area of 89.7 million acres. Using a five-year average yield, production has potential to reach 15.3 billion bushels, up from the 2019 output of 13.7 billion bushels. Given the larger supplies, the function of the market is to encourage demand through lower prices.

For 2020-21, I’ve increased feed usage because of the growing livestock inventory and lower consumption of DDGS. I also have ethanol and domestic feed usage unchanged from my projection for 2019-20. It doesn’t appear that there will be a major change in the energy fundamentals. Exports are projected to reach up to 2.3 billion bushels, as the U.S will have a very large export program in the first half of the year. Exports will be limited due to the year-over-year increase in South American corn production. The U.S. corn carry-out is expected to finish near 3.0 billion bushels which is sharply above the five-year average of 2.0 billion bushels. We could see December corn futures drop to $3/bushel during harvest. This is a very bearish scenario.

Canadian barley acres are expected to be up three per cent to five per cent over last year. Statistics Canada will be out on April 24 with their prospective plantings survey. Using a five-year average yield of 69.0 bushels per acre, Canadian barley production has potential to finish near 10.5 million mt compared to last year’s crop size of 10.4 million mt. It’s important to realize that with the larger carry-in stocks, total Canadian supplies have potential to reach 12.4 million mt, up from the 2019-20 beginning stocks of 11.3 million mt. Canada will have a very burdensome barley situation for the 2020-21 crop year.

Ontario corn production is expected to reach 9.0 million mt, up from the 2019 output of 8.6 million mt. For 2020-21, we’ll also see lower ethanol usage in Ontario resulting in greater corn supplies for livestock usage. Barring adverse weather, Ontario will have a bearish corn situation. On top of that, U.S. corn will readily trade into Ontario in the upcoming crop year.

There are three main conclusions we can draw from the current fundamental outlook for Canadian barley and North American corn. Next fall and winter, the U.S. will have a competitive advantage in finishing cattle due to the historically low corn prices. I’m expecting a year-over-year increase in Canadian feeder cattle exports in the latter half of 2020. Second, we’ll see stronger competition from Ontario feedlots for western Canadian feeder cattle during September through December of 2020. Finally, last fall we saw larger imports of U.S. feeder cattle into southern Alberta but this will not occur this year. Western Canadian calf prices have remained firm throughout the spring and the feed grain price outlook appears to warrant the current price structure.

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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