Your Reading List

A few more thoughts on the barley market

Market Update with Jerry Klassen: Price good for barley growers, feeders aren't so thrilled

Over the past month I’ve received many inquiries about the market outlook for feed grains, especially barley. Earlier in winter, I provided an overview of the fundamentals. Canadian barley stocks at the end of the 2020/21 crop year have potential to drop to historical lows due to the increase in export and domestic demand.

China has been contending with a food shortage after three typhoons damaged a large portion of its crops in late August and September. This shortage comes on the heels of feed needs for expanding hog herd. The additional demand resulted in a sharp year-over-year increase in demand for Canadian barley.

Stronger feed grain prices in Canada and the U.S. had tempered the upside in the feeder cattle market. Farmers are now wondering if barley prices will remain at historical highs into new-crop positions. At the same time, cattle producers are wondering if the barley prices will ease to bring down the cost-per-pound gain. So it’s a good time to discuss factors affecting the barley market over the coming the summer and fall.

Strong demand at $320 MT

As of early March, barley was trading in the range of $300/mt to $320/mt across Alberta. Traditional truck freight spreads between southern Alberta and the non-major feeding areas of Western Canada had eroded. Prices were relatively flat across the Prairies due to the increase in offshore movement. Export prices off the West Coast have been equivalent to Lethbridge feed barley bids. The domestic feed market has been functioning to ration demand through higher prices. The market needs to trade high enough to slow offshore movement or encourage the use of alternative feed grains in feedlot rations. At this stage of the crop year, we haven’t seen any demand rationing.

Domestic and export demand continue to exceed year-ago levels. Canadian exports for the week ending February 21 were 2.3 million mt, up from 1.2 million at the same time last year. Statistics Canada reported domestic feed usage for barley from Aug. t 1 to Dec. 31 2020 at 4.2 million mt, up from 3.9 million mt during the same period of 2019. The latest data along with current demand projections confirm Canadian barley stocks will be historically tight at the end of the 2020/21 crop year.

What about alternative feed sources? U.S. corn is offered into the Lethbridge area in the range of $340/mt to $350/mt. Wheat for feed usage has been trading in the range of $290/mt to $315/mt, which is similar to barley. Canadian non-durum wheat exports for the week ending Feb. 21 were 11.0 million mt, up from 8.6 million mt last year. Statistics Canada also showed that non-durum wheat used for domestic feeding was 2.9 million mt from Aug. 1 to Dec. 31 2020, up from 2.4 million mt for the same period of 2019. Canadian non-durum wheat stocks will also be historically tight at the end of the 2020/21 crop year.

My outlook until fall

These are my predictions for now to the new crop year.

The Argentine corn harvest will move into full swing in April and the Brazilian harvest will begin in June. This may result in lower export values for corn but I don’t see significant imports of U.S. corn into southern Alberta. The U.S. corn situation is too tight. The most burdensome grain in North America is hard red spring wheat in North Dakota. We need to see milling wheat from North Dakota trade into the southern Alberta feed market later in spring and summer.

This spring, Canadian non-durum spring wheat area is expected to be down two million acres from 2020; at the same time, Canadian farmers are expected to see another million acres of barley. U.S. farmers are expected to increase corn acres by one to two million as well. I don’t think we’ll see much U.S. corn trade into southern Alberta until new-crop positions. China has been buying Canadian barley for September through January 2020 at an equivalent prices of $5.50/bushel to $6.00/bushel at the Alberta elevator. Canada may produce another 1.5 million mt of barley but this will have little influence on barley prices for new crop.

In China, corn prices and supplies are heavily regulated — barley trades in more of “free market” environment. The Chinese tariffs on Australian barley are expected to be in place until May 2025. The caveat is that Ukraine, France and Canada are the main suppliers to China due to phytosanitary agreements. Ukraine shipments are uncertain due to export quotas. French barley production is also expected to be up eight to 10 per cent over a year ago. Remember, food security has a different meaning when the population is 1.5 billion as in China or a meagre 36 million as in Canada. China can easily absorb the year-over-year increase in barley production from Canada and France.

Barley prices are expected to remain firm into new-crop positions. We need to see U.S. spring wheat trade into southern Alberta this summer. U.S. corn will likely trade into southern Alberta next winter; however, China could also be a major buyer of U.S corn, similar to the fall of 2020. It takes more than one crop year to rebuild stocks when a country such as China has a food shortage. If adverse weather materializes in the Midwest or Western Canada, there will be further upside in the in coarse grain prices in the upcoming crop year. There may be some harvest pressure for barley during September and October but there is little reason to justify significant downside in Canadian barley prices for new crop.

About the author

Columnist

Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

Comments

explore

Stories from our other publications