I’ve received many inquiries from cattle producers regarding the price outlook for feed barley. At the time of writing, Lethbridge feed barley was trading in the range of $405-$415/tonne while Red Deer operations were showing bids from $395-$405/tonne. Barley prices are up nearly $200/tonne from September 2020.
Yearling prices continue to trade near 52-week highs but calf values have dropped $10-$15 from mid-July. It appears that the higher feed grain prices have contributed to a softer market for calves. Drought-like conditions have plagued Western Canada resulting in lower barley production. This year-over-year decline in production comes on the heels of a historically tight barley carry-out. Therefore, I thought this would be an opportune time to discuss the barley fundamentals and price outlook for the fall period. The price behaviour of barley will have a larger influence on feeding margins and the price of replacement cattle.
Canadian farmers seeded 8.29 million acres of barley this past spring according to Statistics Canada. This is up from the 2020 seeded area of 7.56 million acres. In a normal year, approximately 600,000 acres are used for silage or forage. However, given the drier conditions this summer, trade estimates have the abandonment rate at 15 per cent resulting in a harvested area of 7.05 million acres. Our straw poll survey of farmers and industry representatives suggests the average barley yield will finish around 45.0 bushels per acre, down from the 2020 average yield of 71.1 bushels per acre. We’re projecting a crop size of 6.9 million tonnes, down from the 2020 production of 10.7 million tonnes and down from the five-year average of 8.7 million tonnes.
Given the lower production, the function of the barley market is to ration demand. The domestic market needs to trade high enough to curb exports. Second, the market needs to encourage the use of alternate feed grains. This fall and winter, the substitute will not be wheat: it will be U.S. corn.
Talk in the trade is that there are 1.0 million tonnes of sales on the books to China for the 2021-22 crop year. During the 2020-21 crop year, China bought over 3.5 million tonnes of Canadian barley. Given the high price of Canadian barley, we don’t expect additional sales. At the time of writing this article, French feed barley was offered at US$270/tonne f.o.b. La Pallice (West Coast) and Ukraine feed barley was quoted at US$230/tonne f.o.b. the Black Sea. There are no firm offers for Canadian barley but a nominal value would be around US$400/tonne f.o.b. the West Coast. Canadian barley is out of reach for Chinese buyers. Ukraine, France and Canada are the only countries that can export barley to China due to phytosanitary requirements although we did see some Argentine barley trade to China last year.
Canadian domestic food and industrial typically consume about 900,000 tonnes of barley. The Canadian barley carry-out seldom drops below 500,000 tonnes due to stocks in old bin bottoms and elevators, etc. Therefore, this leaves about 4.53 million tonnes for domestic feed usage.
The last time Western Canada experienced drought-like conditions was 2002. During the 2002-03 crop year, U.S. corn traded into southern and central Alberta. We’re expecting about three to four million tonnes of U.S. corn to trade into Western Canada during the 2021-22 crop year to satisfy feed demand. Canadian non-durum wheat stocks will also be very tight and there will be high demand for high-protein milling wheat. We believe there is another $40 to $50/tonne of upside potential for hard red spring milling wheat prices.
Given the fundamental situation, there are three main factors to consider.
Barley prices will move in line with corn. Corn prices tend to make seasonal lows before the main harvest period. During October, feedlot operators should book 50 per cent to 60 per cent of their feed grain requirements for the 2021-22 crop year. There may be opportunities to book larger volumes of barley at harvest as well. Don’t expect too much downside in the feed grains market after November.
Cow-calf producers need to hold back on marketings until November and December. Higher-priced feed grains have weighed on calf prices; however, if you wait until November, the feed grain situation won’t be quite as tight because corn will be flowing into Alberta at that time.
Backgrounding operators need to beware that feed grain prices could be extremely strong next spring. If you are buying calves in the fall and selling them in spring, this may prove unprofitable.
All cattle producers need to be aware that the world coarse grain market cannot afford a crop problem in South America next spring. Otherwise, coarse grain and wheat prices could move sharply higher. If a problem starts to develop, feedlot operators need to be aggressive with forward coverage.
If China starts stepping forward aggressively for corn and barley, prices will likely move higher for all coarse grains.