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Feed grain supplies down, then up by fall

Market Update: Late 2019 may be a good time to think about backgrounding

The price of feeder cattle is influenced by two main factors — the expected fed cattle price when the feeder is finished; and the price of feed grains.

Let’s have a look at the fundamentals for Canadian barley as well as a brief overview of the corn situation. As of early March, Lethbridge-area feedlots were buying feed barley in the range of $257to $262 per tonne delivered; end users in the Red Deer region were showing bids from $245 to $250. Regular barley exports off the West Coast have enhanced prices in the non-feeding regions of Alberta and Saskatchewan. Elevator bids in northeast Saskatchewan have reached up to $207 tonne. Barley prices are about $30 above a year ago and are tempering the upside in the feeder cattle market.

Statistics Canada estimated the 2018 barley production at 8.4 million tonnes, which was up from the 2017 output of 7.9 million and in line with the five-year average production of 8.5 million tonnes. Despite the larger production, total beginning supplies were actually down from year-ago levels due to the smaller carry-in stocks from the previous crop year. Total beginning stocks for the 2018-19 crop year were 9.7 million tonnes, down from 2017-18 starting level of 10.1 million.

In addition to the lower beginning stocks, the main difference from last year is the aggressive export pace. For the week ending February 10, crop year-to-date exports were 1.3 million tonnes, up from the year-ago level of one million. for the 2018-19 crop year, total barley exports are expected to reach 2.3 to 2.5 million tonnes, up from the 2017-18 exports of 2.1 million. There has been a steady program of Canadian barley moving into China. Unlike past years, Canadian barley has also been competitive into Middle Eastern destinations (non-Saudi Arabia). The 2018-19 crop year was quite unique in that all major exporters of barley (Russia, Ukraine, Europe, Australia) experienced a year-over-year decline in production.

1/ includes barley processed domestically and then exported as malt. **Five year average is 2013 through 2017 crop years.
photo: File

Domestic usage for seed, industrial and food processing is expected to be about 1.1 million tonnes. I’m factoring in 5.1 million for domestic feed usage so leaves 1.1 million tonnes for the carryout. This is considered historically tight. Notice on the table, the five-year average carryover is 2.6 million tonnes. The function of the market is to ration demand which will cause the domestic market to trade at a premium to world values to slowdown the export pace. Secondly, the feed barley market needs to trade high enough to encourage more U.S. corn imports.

Given the tight carry-out, the barley market will encourage farmers to seed more acres this spring. At the time of writing this article, some private grain companies and analysts were projecting a seven to 10 per cent increase in barley acres. This should be sufficient to replenish supplies for the 2019-20 crop year. Keep in mind that farmers all over the world are receiving the same price

The western Canadian feed grain situation will be rather snug through the spring and summer. However, during the fall period, barley and corn supplies will be rather burdensome. This feed grain situation could add $10 to $12 onto the average yearling price during the fall. For 2019-20, it will once again pay to sell barley on the hoof, rather than to the elevator. We’ll probably see more cow-calf producers background over the winter.

About the author

Columnist

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. Jerry 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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