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MARKET TALK – for Apr. 11, 2011

Cash barley values in Southern Alberta have been hovering in the range of $190 to $193 throughout the winter. Despite corn prices trading near historical highs, barley prices have struggled to

move higher due to larger feed wheat supplies in Western Canada. Over the past two years, Western Canada has imported 0.8 to 1.2 million mt of dry distillers grains and solubles (DDGS) from the U.S. However, higher corn values have caused prices of DDGS to trade at a $20 to $30 premium over barley delivered to Southern Alberta. I’ve had many inquiries in regards to the price outlook for corn and barley for the 2011-12 crop year. Given the tighter U.S. corn stocks, the feed grains complex will be extremely sensitive to upcoming government acreage and yield estimates. Many regions of the U.S. and Canada have above-normal moisture conditions going into spring seeding. Planting delays usually results in yields below trend.

Without going into detail, the 2010-11 barley carryout is expected to come in near 1.8 million mt. I’ve lowered the export projection and domestic feed consumption is also down from last year due to larger feed wheat usage. The Southern Alberta barley market has traded in a range of $150 to $240 over the past five years. The long-term average carryout is 2.4 million mt and the market has hovered at $193, in the middle of the historical price range.

Western Canadian barley acres for 2011 are projected to be down 10 to 20 per cent due to lower returns per acre compared to other crops. I’m estimating total Canadian barley acres at 6.1 million, down 15 per cent from last year. Using a yield of 60 bushels per acre, production is estimated at 6.8 million mt, down from 8.3 million in 2010. Total supplies (production and carryin) will only be 8.6 million mt which is one of the lowest on record and down sharply from the 10-year average of 14.1 million mt.

Looking at the demand equation exports are estimated at 0.8 million mt, which will be mostly malt barley. Domestic feed consumption could drop to 5.5 million mt causing the carryout to finish just over 1.0 million mt. Given the lower carryout projection, the function of the domestic feed barley market will be to ration demand. This will require domestic feed prices to trade at a premium to world barley prices to limit the export program.

Total feed usage in Canada is approximately 18 million mt when we calculate all feed grain consumption. If Western Canada has normal growing and harvesting conditions, a larger portion of the wheat crop will be milling quality. This should cause the barley-corn spread to narrow. Domestic barley prices have potential to trade in the range of $200 to $230 delivered Southern Alberta in the 2010-11 crop year.

World feed grain conditions look quite favourable at this time. Ukraine barley production will increase and saturate barley demand in the Middle East during the summer and fall period of 2011. The Argentine and Brazilian corn crops are also coming in better than expected. U.S. corn acres could reach 92 million this year, which would result in one of the largest corn crops on record.

Without going into detail, it appears that the U.S. corn carryout for 2011-12 will increase to 800 million bushels, up from 650 million bushels in 2010-11. The main point here is that the fundamentals are not becoming tighter,

but rather stocks are growing. In the short term, export demand for corn will be down from previous levels. Foot-and-mouth disease in South Korea along with the Japanese earthquake has tempered world feed demand requirements.

At this time, it looks like world wheat conditions are quite favourable in all major producing regions. World wheat stocks will grow over the next six months weighing limiting the upside in the feed grains market. It appears that we will see limited exports from Russia in the upcoming crop year which will add supplies to the world trade situation.

The world coarse grain fundamentals are somewhat bearish at the current price levels.

GeraldKlassenanalyzesmarketsinWinnipegandalsomaintainsaninterestinthefamilyfeedlotinSouthernAlberta.Hecanbereachedat [email protected] netor204-287-8268.

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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