The cash barley market is expected to remain under pressure moving into the spring timeframe. Farmers in Western Canada have become aggressive sellers and feedlots appear to be well covered for their nearby demand. In addition to weaker domestic fundamentals, the global supply and demand situation remains bearish. The USDA recently modified their corn outlook showing a carry-out of nearly 1.8 billion bushels. This could cause CBOT corn futures to move below the $3 level. The feedgrain complex incorporated a risk premium due to the uncertainty in South American corn production. Now that conditions appear favourable, this risk premium will likely erode approaching harvest. Feedlots should continue to buy on a hand-to-mouth basis given the lower price forecast.
The USDA released their crop report on January 12 showing a carry-out of 1.79 billion bushels. The demand equation has changed significantly from earlier in the crop year. Corn for ethanol use was lowered along with domestic feed usage and exports. CBOT corn futures now have potential to move sub $3 as we may see further cutbacks in the demand equation. The function of the market will be to encourage consumption. The market is getting back to a similar fundamental situation as in 2005-06.
The Brazilian corn area has received timely rains and at the time of writing this article, the 10-to 15-day forecast showed potential for additional precipitation. Argentina is still on the drier side but traders have factored in a worst-case scenario. Therefore, if conditions improve at all, we may see further pressure on the world feedgrain market.
Macro economic conditions continue to spill over into the feedgrain sector. Crude oil remains in a downward trend and the economy is showing no signs of a recovery. The U. S. dollar appears to be stabilizing and percolating higher which is also tempering export buying interest.
The domestic barley market has experienced a surge in farmer selling. Despite the colder temperatures, supplies coming on the market have been rather surprising. The barley crop may be larger than earlier estimated given the amount of farmer sales. Feed barley exports will remain sluggish given the competition from the Black Sea region and Europe.
The 2008-09 Canadian barley carry-out has potential to finish at 2.46 million mt.
Given the larger projected stocks figure, there is potential for further weakness. Cash barley values in southern Alberta could drop to the $150 level as the market encourages consumption. Comments from farmers in Western Canada suggest that barley acres could be up three per cent to six per cent in 2009. Unless adverse growing conditions materialize, the market will remain under pressure into the spring period.
At this time feedlots should continue to buy on a hand-to-mouth basis. Look for further weakness in the overall feedgrain complex. Depending on conditions in spring, I may advise to take some coverage for the summer and winter periods of 2009.
Gerald Klassen analyses markets in Winnipeg and also maintains
an interest in the family feedlot in southern Alberta. 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