Cash barley prices in Western Canada have stabilized over the past month. In the previous issue, I provided three possible fundamental cases depending on the acreage in Canada. Seeding is approaching and many analysts are surveying producers to get a better handle on the potential acreage. At the time of writing this article, seeding was a month away in the southern Alberta, which is usually the earliest seeded area in Western Canada. It appears that barley acres could be down 10 per cent and this will have significant influence on the price structure from this point forward. Returns per acre are more favourable for other major crops and this has discouraged production. Statistics Canada will come out with the results of its acreage survey in April but at this time, it is pretty safe to say acres will be down significantly from last year.
Using a 10-year average yield of 54 bushels per acre, production has potential to finish at 8.8 million mt, which would be one of the smallest crops on record, excluding the drought of 2002. Total beginning supplies are expected to be 11.1 million mt, down almost 2 million mt from last year.
Looking at the demand, the domestic feed market will function to ration demand away from export channels. Feed barley exports are expected to be minimal as the domestic market will reflect a large premium over export values.
Notice the carryout is expected to finish at 1.3 million mt. The Canadian carryout does not usually dip under 1.4 million mt so this is a historically low projection. Feed barley prices in Western Canada have potential to trend higher in the next crop year. Cash values in the Lethbridge area could reach over $200 per mt. The market will be very sensitive to weather and if adverse weather materializes, barley prices could jump quite sharply during the summer months. Potential tightness in new crop could pull up old crop prices.
U. S. corn acres are expected to be very similar to last year. The USDA estimated seeded area at 86.0 million acres and using a trend yield of 156.9 bushels per acre, production came in at 12.365 billion bushels. It is important to note this would be the highest yield in the last four years. There are two major risks to the corn market this year. First, adverse weather could result in yields less than 156.9 bushels per acre. For example, if corn yields drop to 152 bushels per acre, production could dip to 12.0 billion bushels resulting in a carryout of 1.3 billion bushels. Keep in mind the world market has just experienced drier conditions in Argentina, resulting in production dropping 40 per cent below last year. Argentina is the world’s second-largest corn exporter and the world is now focusing on Northern Hemisphere crops. The second risk is if crude oil values start to percolate higher. Without going into detail, ethanol consumption was raised to 4.1 billion bushels for the 2009/10 crop year, up 500 million bushels from 2008/09. Corn prices have become highly correlated with energy values as ethanol demand increases.
In conclusion, barley prices will have to trade at a premium to U. S. corn in major feeding areas of Western Canada in the 2009/10 crop year. Barley values will be highly influenced by corn and energy. I’m expecting volatile feed markets in Canada and the U. S. during the summer period.
Gerald Klassen analyzes markets in Winnipeg and also maintains an interest in the family feedlot in Southern Alberta. For further information, comments or questions, he can be reached at [email protected]or 204 287 8268
The material contained herein is for information purposes only and is not to be construed as an offer for the sale or purchase of securities, options and/or Futures or Futures Options contracts. While the information in this publication cannot be guaranteed, it was obtained from sources believed to be reliable. The risk of loss in futures trading can be substantial. The article is an opinion only and may not be accurate about market direction in the future