I’ve been on the road for the past 2 weeks and so I finally grabbed a few beers on Friday and a lot of coffee on Saturday and deconstructed Agriculture & Agri-Food Canada’s Outlook for Principal Field Crops, namely what they’re expecting for the 2018/19 crop year.
For barley, it looks like we’re going to see more of it.
This is because the AAFC is forecasting Canadian barley area to jump more than 7% year-over-year to just under 6.2 million acres. This would also be about 2.5% below the five-year average of 6.33 million (see charts below for a visual of all columns).
Add in an average yield of 69 bushels per acres and only 10% abandonment, production is expected to wind up at 8.3 million tonnes. This is a 5% jump from 2017/18’s crop of 7.9 million tonnes, but still 2% below the five-year average of 8.45 million (you can basically thank the monster 2013/14 crop for that average though).
From a demand perspective, Canadian barley exports are expected to remain relatively robust at 2.35 million tonnes. That’s technically down 4% from this year, which is looking like one of the largest years for Canadian barley exports in the past couple of decades!
Sidenote: Through the end of January, barley exports were running at nearly 900,000 tonnes, which is basically double the 467,000 tonnes shipped out by this time a year ago.
Keep in mind that this export number includes both grain and barley products like malt. I literally called the Statistical Clerk at AAFC to help clarify how they were counting exports. Basically they take StatsCan’s numbers and add int malt, which is converted to an equivalent to grain at a ratio of 1.339.
Domestically, malt is counted in the Food and Industrial Use column. But in this current crop year and next year, these numbers suck.
AAFC is forecasting just 136,000 tonnes of Canadian barley being used up within the Great White North. This is in-line with 2017/18 expectations but it is a big drop (55% lower) from the five-year average of 303,000 tonnes.
Ultimately, for domestic barley demand, it’s all about the feed game.
6 million tonnes of barley are expected to go into AAFC’s feed, waste, and dockage column, which is up 3% from 2017/18 (5.82 million) and 4% from the five-year average (5.77 million).
Thanks to 2017/18’s strong exports and the aforementioned solid feed demand from a larger livestock herd in Canada, the 2018/19 is likely to start with just 1.55 million tonnes of barley still available for sale.
Combined with the AAFC’s forecasted international and domestic demand, they see 2018/19 carryout at 1.25 million tonnes.
This would almost 20% lower than what’s estimated for the 2017/18 carryout, and 25% below the five-year average of 1.65 million tonnes.
Does this mean barley prices are going up, Brennan?
Hold you horses haus!
Across North America, the USDA projected back in November that combined Canadian and American seeded barley acreage could jump 20%. Further, with more normalized yields in the U.S>, production is expected to climb 35%.
However, thanks to tighter stocks in both the US and Canada, prices are expected to remain relatively flat.
Specific to the feed market, remind yourself that we’re at the top of the roughly 2-3 year cycle of prices, and with a stronger Canadian Loonie in the mix, we’re cognizant of more downside to feed barley prices. Our call on January 15th to sell another 15% of 2017/18 old crop feed barley continues to be the right call.
On the malt side, there’s a big asterisk: For the second year in a row, contracted new crop malt barley acres in the U.S. are quite low.
But that’s what happens when you get three years of relatively decent production (or at least a lot of production to pick and choose from).
Thus, we see malt barley prices trading sideways again in 2018/19 (not to mention in the short-term, except for maybe some short-term Metcalfe demand, like we saw about this time a year ago).
My take of all these numbers is that indeed, we will see more acres and more production.
Demand is the number I’m concerned about.
I’m a bit torn though on whether or not Canadian barley exports will able to continue to compete as well as they are this year, especially if the Canadian Loonie gets back above $0.85 USD.
Mother Nature holds the ultimate trump card, unless Trump trumps it with his own removal of NAFTA. This would not be good for any Canadian grains, especially barley.
Canada tends to have a fair amount of malt products that get exported. Also, a lot of live animals or meat products get exported to the U.S.. Even with a tariff applied, this would not to be positive for malt or feed barley prices.
I really dislike Trump cards.
January 25 – AAFC Outlook for Barley
For 2017-18, total supply decreased marginally to 10.2 million tonnes (Mt) due to lower production, despite high carry-in stocks. Total domestic use is forecast to increase by 5% due to higher feed and industrial use. Total barley exports are forecast to increase by 5% due to the steady total supply and lower world supplies. Barley carry-out stocks are forecast to decrease by 27% to 1.6 Mt but will remain above the previous five-year average. The Lethbridge In-store feed barley price is forecast to increase due to the tight total barley supplies and the decline in the availability of other domestic feed grain substitutes.
Over the past month, the cash feed barley price at Lethbridge, Alberta increased $5-$6/tonne (t) as cold weather returned to the Canadian prairies. The price gain occurred in spite of the sharp increase in imports of both US corn and DDGS to the three Prairie Provinces during the fall. For this crop year, the differential between the spot price for feed barley, at the provincial level compared to Lethbridge, has narrowed moving westward. The basis for Manitoba basis is wider than the previous five-year average, Saskatchewan is average and Alberta is narrower than average.
In the US, barley production was 29% lower than in 2016 due to a smaller harvested area and lower total average yield. Similar to Canada, barley stocks in the US have decreased by 20% from 2016-17. The generally high-quality US barley stocks are lower than the previous short-to-medium term averages. Large world corn and feed supplies have kept world feed barley prices essentially unchanged since mid-September, despite lower supplies. Given the sharp decline in production, Australia has seen the highest price increase, averaging about US$40/t higher than last crop year. Argentina is the world’s current price leader but with smaller supplies. However, world malt barley prices continue to slowly strengthen due to lower supplies in the key malt exporting countries of Australia and the EU. North American malt barley prices remain flat with high quality crops on both sides of the border and no shortage of malt quality stocks.
For 2018-19, seeded area is forecast to increase 7% from 2017-18 due to lower barley carry-in stocks. Production is forecast to increase 5% to 8.3 Mt due to the higher area and an average total yield. Despite the higher production, lower carry-in stocks will cause total supply to decrease by 2% to 10.0 Mt. Total domestic use is forecast to increase by 3% due to slightly higher feed use in cattle and hog production. Exports are forecast to decrease by 4% due to higher world supplies and a return to normal trade patterns. With a lower total supply, barley carry-out stocks are forecast to decrease by 19% to 1.3 Mt or below the previous three and five-year averages. The Lethbridge cash feed barley price is forecast to decrease slightly from 2017-18.
If early forecasts are correct then the total North American barley supply will expand for the 2018-19 crop year with a higher area. As a preliminary projection, at the end of November, the USDA projects an increase of 20% for seeded area and 35% for production. However, due to the sharply lower beginning stocks, total supply is forecasts to increase only so that ending stocks and prices remain flat. For a second year, malt barley contracting in the US barley states has been reduced as the inventory of high quality malting barley remains very high since there have been three successive years of outstanding selection rates.
World barley production, and supply, is expected to increase slightly for 2018-19 as some of the world’s major producers, such as the EU and Australia, have increased their barley production. Large corn and feed wheat carry-over will provide a base for ample cereal supplies.