The feed barley market has been percolating higher throughout the fall. While the crop size is marginally higher than last year, stronger Chinese demand has enhanced offshore movement. Strength in corn prices has also spilt over into the world barley market, enhancing export values. The U.S. corn crop has come in smaller than anticipated and stronger export demand has also tightened the fundamental structure.
The coarse grain complex is also incorporating a risk premium due to the uncertainty in South American corn production. Brazil experienced below-normal precipitation and above-normal temperatures during November; pockets in Argentina are also on the drier side. I’ve received many inquiries from cattle producers regarding the outlook for feed barley. This rally has caught many cattle producers off guard and pressured feeder cattle prices.
Statistics Canada released their final crop survey on December 3; therefore, the guesswork on the supply equation has been eliminated and the focus is on demand.
Canadian barley production came in at 10.7 million mt, up from the previous survey of 10.3 million mt and up from the 2019 output of 10.4 million mt. Canadian farmers seeded 7.561 million acres of barley in 2020 and harvested 6.940 million acres. On the previous survey, the harvested area was 6.812, so the larger harvested area contributed to the increase in production. Yields were also higher than expected. The average yield came in at 71.1 bushels per acre, up from the previous survey of 69.1 bushels per acre.
Canadian barley exports for the 2020-21 campaign are expected to reach 3.5 million mt, up from 2.3 million mt last year. This projection could be conservative because demand from China may be larger than earlier anticipated. China has a food shortage problem and the Chinese government has implemented policies to limit waste and conserve supplies. At the time of writing this article, Canadian feed barley at the Chinese port was quoted at US$6.50/bushel, while the Chinese Dalian corn futures for May were trading at US$10.24/bushel. Chinese domestic corn prices are sharply above Canadian barley prices, enhancing Canadian barley exports. In China, barley is more of a “free market” and not as regulated as the corn trade.
We continue to forecast Canadian domestic feeding at 6.5 million mt, compared to 2019-20 feed usage of 6.9 million mt. We’re forecasting a 2020-21 carryout of 833,000 mt. Stocks will be historically tight at the end of the 2020-21 crop year. The minor increase in supplies hasn’t changed the market structure. The domestic barley market needs to ration demand so that we see more wheat usage or larger imports of U.S. corn.
At the time of writing this article, southern Alberta feedlots were buying feed barley in the range of $265/mt to $280/mt delivered while Red Deer operations were showing bids from $255/mt to $270/mt delivered. Prices have rallied approximately $60/mt from the August lows and there is no signal this trend has come to an end. The barley market is reflecting a $10/mt to $20/mt carrying charge for March through June delivery positions.
In the Lethbridge area, wheat for feed usage was quoted from $265/mt to $275/mt delivered January and February; in the Red Deer area, wheat for feed usage was trading from $262/mt to $277/mt delivered. The average elevator bid for No.1 and No.2 CWRS 13.0 protein was $250/mt during the first week of December. Over the next few months, we’ll see larger volumes of milling wheat trade into domestic feed channels. In southern Alberta, U.S. corn is trading at a $20 premium to barley so we haven’t seen a major increase in corn imports. U.S. rail freight is expensive at this time of year and grain terminals in southern Alberta are focused on grain and oilseed exports, not imports of U.S. corn.
For the 2021-22 crop year, we’re forecasting a 10 per cent to 12 per cent year-over-year increase in Canadian barley acreage. Using an average yield of 70.0 bushels per acre, the crop size would be around 11.9 million mt. Demand for 2021-22 will probably be similar to the 2020-21 crop year; therefore, stocks as of July 31, 2022, will likely come in just under 2.0 million mt, which is up from the five-year average of 1.3 million mt. This is a very early projection but the market is functioning to encourage acreage.
The market this spring will be very sensitive to acreage projections and growing conditions. The Canadian barley market cannot afford a crop problem. If adverse weather develops in Canada or the U.S. Midwest, this barley market could rally sharply from current levels. I’ve advised feedlot operators to have over 60 per cent to 70 per cent of their barley requirements on the books from January through July 2021. In this environment, you want to have more coverage rather than less.