Editor’s note: The numbers and forecasts included in this article were prepared on October 21. Market changes may have occurred between then and now.
The 2013-14 world barley production has bounced back from 2012-13 and is forecast at 142.3 MT, a 10 per cent increase from last year’s 129.5 MT. The EU’s crop is up 5.0 MT to 60 MT and is of generally good quality. The EU’s granted export licenses are 4.0 MT to date — double their exports this time last year.
Australia has received beneficial rains which should result in its crop reaching 9.0 MT. However, there are further rains forecast and harvest is just beginning, so the quality of their crop is yet to be confirmed.
Argentina is expected to produce an average barley crop of 4.5 to 4.7 MT. Conditions have not been ideal as a significant portion of the grains area has been dry. Trade of Argentine barley has been limited due to the political uncertainty around export policy in terms of tariffs and license quotas. Argentine farmers have also been resistant to the recent lower values but that can change when the harvest is complete and it’s time to move the crop.
Western Canada has produced a 2013 crop with record yields. Total barley production is now forecast at 9.7 MT, a 23 per cent increase from 2012.
Malting and feed barley values have been under pressure since July in North America and elsewhere, although EU feed values are relatively firm today (due in part to the strong euro) at US$245 to US$250 f.o.b. The good quality crops in EU and Canada are pressuring the malting/feed spread. Current EU two-row malting values are about US$265/tonne f.o.b., which is just a $20 premium to feed. In the past, this spread has in fact been as narrow as $15/tonne. In Canada, the malting/feed spread has exceeded $1/bu. ($46/tonne) until recently, but we are now seeing it closer to $0.85/bu. It will be further pressured toward $0.50/bu., in line with the offshore spread. The spread for 2014 contracted barley will likely be at a more traditional $35/tonne.
Lethbridge cash feed trades have been holding steady at $180 to $185/tonne. This is down $100/tonne from $280 one year ago. The f.o.b. Vancouver equivalent is about US$220 to US$225/tonne f.o.b. Local feeders are expected to fill feedlots which may firm prices somewhat (by $10 perhaps) through mid-winter. Corn grain and DDGs are not competitive into Lethbridge, but there is plenty of barley and the West Coast capacity constraints will keep a lid on any barley rally.
We were rather spoiled last year as Canada had a decent crop while prices spiked due to the heat and drought in the U.S. Midwest. Last winter, many analysts encouraged farmers to sign production contracts for malting barley at $6 to $6.50 per bu. when available. Then in July, we said that $5.50 bids should be booked. Then $5 in August. The writing was definitely on the wall. While some farmers may have unrealistically wanted the previous year’s values, most were concerned that the lateness of the crop and the cool mid summer weather did not bode well for harvesting malting quality barley. We were then blessed with hot dry weather, which advanced the crop so that most of it was harvested with good quality results. We are now seeing malting barley bids below $4/bu. in Saskatchewan.
Australian new crop No. 1 grade malting barley is currently quoted at about $262 f.o.b. which works back to about $3.90/bu. in west-central Saskatchewan. This will be Canada’s main competition on the Asian malting barley market. If they harvest a good quality crop, Aussie malting offers can go lower. Aussie feed quotes are near US$240 f.o.b. (a $22/tonne spread to malting) and a premium to our domestic feed. However, Canada’s ability to maximize offshore sales of feed and malting will be limited by rail and Vancouver terminal capacity constraints.
U.S. demand may somewhat temper the downward price pressure for Canadian malting values in the U.S. drawing area. U.S. malting barley imports are projected at 500,000 tonnes.
Quality of western Canadian barley is generally good with high plump. However, the protein is below average. Demand is generally for a minimum 11 per cent. There is a lot of nice barley out there with protein below 11 per cent which may not be selected for malting. As well, the supply of Meredith exceeds demand and country bids are discounted to Metcalfe and Copeland accordingly (by $0.25/bu. or more). The preference in offshore markets is still for Metcalfe first and Copeland second. There has been some limited acceptance of Meredith in China but time will tell as to whether this demand will grow. Other newer varieties such as Bentley, Kindersley, Merit 57 and Major have had some domestic acceptance with Bentley and Kindersley showing the most promise.
As Metcalfe and Copeland are replaced with new varieties, there may not be any one dominant variety. The industry will need to work to promote new varieties to gain acceptance by our customers, rather than companies just promoting the variety(s) in which they have a vested commercial interest.
In summary, feed and malting barley prices have stabilized somewhat. Harvest pressure has passed. But any significant upside appears unlikely given the large barley stocks. For pricing targets in west central Sask, feed bids near or slightly above $3/bu. and malt near $4/bu. are likely the best that can be hoped for. Domestic feed barley values are actually now lower than offshore (EU and Aussie) values. However, our rail and terminal capacity limitations will restrict our ability to export and arbitrage higher offshore values as all the other crops are also vying for a piece of this capacity. †