March 14 – With Slow Rail Movement, How Far Are We From The Top of The Barley Market?

Feed barley prices have been performing nicely, as have barley exports in general. If rail movement picks up, will prices explode?

Feed barley prices have been performing nicely, as have barley exports in general. If rail movement picks up, will prices explode?

We covered the transportation issue of Canadian grain a few weeks ago, with special mention of how oil movement has increased while grain has dropped.

It’s clear that grain transportation by rail, as well as grain handling capacity, are scoring very poor again this year. Therefore, we wanted to assess whether 2017/18’s outcome is going to be as bad as the 2013/14’s transportation issue.

Using that crop year as a benchmark, here’s a review of where we could see things heading in the next few months as relates to spring wheat.

First though, a refresher.

A bumper harvest filled Western Canada’s grain handling system to the brink in fall 2013.

Temperatures were bloody cold, trains were not moving whatsoever, and producers were left with very few marketing options over the winter of the 2013/14 crop year.

On one hand, farmers were unable to deliver their crop. On the other hand, they were dealing with depressed prices and very weak basis levels as commercials were simply signaling that they did not want to buy their grain.

Finally, in March 2014, the Canadian government intervened by imposing regulation on railroad companies. In particular, they asked the railroads to allocate a certain number of railcars to ship grains so that the backlog could be cleared.

Thus, we figured it would be interesting to look at export volumes from this time back in the 2013/14 crop year, to where we’re at today. We’re specifically looking at the previous 6 weeks, as well as the next 6 weeks. We then are comparing this against Ag Canada’s forecast for full-year export numbers.

Where the data is available, we also looked the basis levels or cash prices of the crops, again comparing things today to where they were in 2013/14 (and where they went from March 2014 onward).

So what does it look like?!?!

Let’s first look at total grain exports.

As the first chart below shows, from week 25 (basically the end of January) to week 31 (the beginning of March), total Canadian grain exports are sitting at 24.8 million tonnes. tracking a bit behind the 3-year average. Further, they are ahead of the 2013/14 pace of all Canadian grain exports.

Thus far in 2017/18, according to CGC, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the 3-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14.

What is likely going to happen as we roll through the next 6 weeks?

Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double!

Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.

canadian-grain-total-exports-2017-2018-ytd

 

Looking into barley specifically, total Canadian barley exports year-to-date are pegged at a little more than 1.13 million tonnes. This ahead of both the three-year average and where we were sitting at this point in 2013/14, of 710,000 and 684,000 tonnes respectively..

This being said, as the second chart depicts, exports in the last two known weeks are well ahead both the 2013/14 and 3-year weekly average pace. Put another way, it looks like Canadian barley exports from licensed facilities have been skyrocketing in the past couple of weeks.

 

canadian-barley-exports-2017-2018-ytd

 

Let’s look at prices now. Since malt barley is acting like a sloth and demand seems to be the only thing that moves the needle, let’s look at feed barley prices now. We’re specifically looking a feed barley prices delivered into Lethbridge.

As the chart shows, barley prices dipped in 2013/14. More than anything, this was likely due to the record barley crop that year of more than 10.2 million tonnes!

However, in a similar vein, barley prices were weak in 2014/15 and the bulk of 2016/17, except for a rally late in 2016/17.

Barley prices have improved in 2016/17 and since then, they’ve continued to go through the roof way above the previous three-year average.

Looking bigger picture, we see that barley prices were very volatile across the time span of the chart. There are lots of ups and downs, but there’s no real statistical pattern here, other than maybe some seasonality.

To conclude, it’s unlikely that prices should shoot up further than where they’re at today if rail transportation starts to improve. Notably, cash barley prices are nowhere near as bad as they were in 2013/14, which is a good thing worth considering.

We are sitting at 90% sold on old crop feed barley and 20% sold on new crop feed barley and continue to see strong movement on the FarmLead Marketplace, although we know of at least 3 feedlots in the Lethbridge area who are 90% covered through August. .

While our credit-verified buyers have been actively posting their feed barley bids, they have also been picking off users who have been posting their own barley For Sale.

 

canadian-barley-exports-2017-2018-ytd

About the Author
Adrian Uzea

Hailing from a farm in Romania’s breadbasket, Adrian’s keen interest in agriculture inspired him to obtain a Master's degree in Ag Economics from the University of Saskatchewan. Adrian provides deep, original insight for Canadian farmers of grains, oilseeds, and other specialty crops to help improve their bottom line. He was previously a Market Analyst with a provider of grain marketing services like DePutter Publishing.