March 12 – What Will Feed Barley Prices Do From Here on Out?

Where are feed barley prices at and, more importantly, where are they going? There’s a few indicators telling us what to watch out for.

Where are feed barley prices at and, more importantly, where are they going?

Let’s first look at a few of the pricing datapoints. In the article below, the numbers seem to be old so let’s review what we’re seeing on the FarmLead Marketplace (these are traded prices in the last 10 days): 

Lethbridge: $245-$247 CAD / metric tonne or $5.33 – $5.38 CAD / bushel;
Red Deer: $218 – $223 / MT or $4.75 – 4.86 / bushel;
Northern Alberta / Peace River region: $192 – $195 / MT  or $4.18 – $4.25 / bushel;
Northwestern Saskatchewan: $194 – $199 / MT or $4.22 – $4.33 / bushel;
Eastern Saskatchewan: $197 – $203 / MT or $4.29 – $4.42 / bushel;
Western Manitoba: $203 – $207 / MT or $4.42 – $4.51 / bushel; and
Eastern Manitoba: $208 – $213 / MT or $4.53 – $4.64 / bushel

Since barley prices are rising and stocks are low (more on this later), US corn is proving a competitive substitute.

Further, we’ve been seeing those with malt barley quality selling some of their product into the feed barley market, which in turn, can also put pressure on feed prices.

A more interesting substitute has been the importation of American DDGs. In the month of January, 62,000 tonnes of the US dried distiller grains were imported into Canada. This is about double what is normally shipped into the Great White North from across the 49th parallel….

One could posit that in order for US corn and DDGs to not overtake the Canadian feed grain market, Canadian barley exports would have to slow and indeed, more malt barley would be going into feed markets. 

We’ve talked many times in the past about why we’ve seen prices getting up this high, with the main drivers being the smaller 2017/18 Australian barley crop opening up doors for more Canadian exports, as well as a tighter global balance sheet.

Also, you have to account for the downtrend in Canadian production. Consider the five-year average of a Canadian barley harvest is 8.45 million tonnes, 2016’s haul was 8.8 million tonnes while the 2017 crop was just 7.9 million tonnes.

Sidenote: this is what you get when acres seeded go from 6.4 million in 2016 to 5.77 million in 2017. The five-year average for Canadian barley acreage is 6.33 million acres.

When we earmark half of these tonnes to go into malt column, that’s even less going into the feed barley channel Even more telling, is that half of these barley crops are malt barley, which is not being sold into feed barley channels. 

With malt barley demand from international buyers relatively consistent (see China’s barley needs), these keeping the pipeline of product moving. 

The 2017/18 carryout is now predicted to come in at 1.4 million tonnes. This would be an 34% decline from 2016/17’s ending stocks of 2.1 million tonnes, and 14% below the five-year average of 1.63 million tonnes.

To help re-fill the pipeline, it’s expected that 2018/19 Canadian barley area seeded will come in around 6.2 million acres.

Ultimately, knowing that acres are going to climb 7% year-over-year and production is set to improve to more than 8.3 million tonnes, we’re cognizant of more downside risk here, especially in new crop barley prices.

This is why, last week, we suggested moving to 20% sold on 2018/19 new crop feed barley.

You’ve seen this writing on the wall before in terms of the feed barley prices cycle so let’s make sure we’re not ignoring history here. 

 

Feed grain outlook for 2018

Once again it is that time of year when I receive many inquiries from cattle producers with regard to the price outlook for feed grains. At the time of writing this article, Lethbridge area feedlots were buying feed barley in the range of $218/mt to $223/mt; however, feedlots located between Calgary and Edmonton were making purchases from $205/mt to $210/mt.

The market has been functioning to attract farmer selling in the two main price discovery regions of Western Canada. Available supplies are rather snug moving into road ban season and spring seeding. The sharp year-over-year decline in production, along with the higher quality crop, has set a firm tone throughout the winter. Approximately 50 per cent of the 2017 crop was malt quality and farmers with malt supplies do not want to sell into feed channels. In this article, I will discuss the price outlook for feed barley and some of the factors that will influence the price structure over the next four to six months.

Statistics Canada’s final production estimate came in at 7.9 million mt, which is down from the 2016 crop of 8.8 million mt and down from the 10-year average of 9.0 million mt. While yields turned out better than anticipated, lower seeded acreage was the main factor resulting in the year-over-year decline in production. Of the 7.9 million mt of production, industry estimates suggest that as much as 50 per cent or 4.0 million mt was malt quality. Given the tighter feed barley supplies, the function of the market is to ration demand through higher prices. The market needs to trade higher to shut off exports and encourage the use of alternate feed grains such as corn. Also, by the end of the crop year, some of this malt-quality barley needs to flow into feed channels.

While production was down from 2016, the demand is stronger than year-ago levels. For the week ending January 18, crop year-to-date exports were 890,000 mt, which is up from year-ago exports of 467,000 mt. Most of the exports are malt-quality barley and these sales were made earlier in the crop year. At the time of writing this article, Russian feed barley is offered at US$195/mt fob the Black Sea while Australian barley is quoted at US$223/mt fob the West Coast. Canadian feed barley is uncompetitive on the world market due to higher prices in the domestic market. The market has accomplished this function by shutting off exports. Fresh malt barley sales are also unlikely because of strong competition from Australia and other major exporters. China has been actively buying Black Sea feed barley and Australian barley for malt purposes.

During the 2016-17 crop year, there was a significant amount of feed durum and feed wheat that was used in Western Canadian feedlots. However, approximately 95 per cent of the 2017 wheat and durum crops graded in the top milling category. Therefore, we’re seeing more barley used in feedlot rations.

There is a fair amount of Manitoba and U.S. corn flowing into southern Alberta. The barley market is accomplishing the function to encourage the use of alternate feed grains by trading at equivalent or higher prices than imported U.S. corn. However, we need to see more imports by the end of the crop year. In the major feeding regions of Alberta, feed barley prices are higher than malt barley. Most of the malt barley exports are flowing from Saskatchewan where the feed price remains at a discount to malt barley. This will change by the end of year because we’ll likely see the feed price in Saskatchewan higher than elevator bids for malt barley.

I’m forecasting a Canadian barley carry-out of 1.4 million mt, which is down from the 2016-17 ending stocks of 2.1 million mt and also below the 10-year average of 1.7 million mt. This suggests that the barley market needs to encourage acreage this spring, otherwise the feed barley supplies will be extremely tight for 2018-19. Given the tighter carry-out, the market will be extremely sensitive to growing conditions. Much of Western Canada has received less than 40 per cent of normal precipitation over the winter. Drier years are usually followed by dry years.

Outside influences are also supportive for the barley market. The Argentine corn crop is coming in lower than anticipated due to dry and hot conditions during pollination. U.S. corn is now competitive on the export market. Crude oil prices remain near three-year highs resulting in stronger ethanol demand. Earlier in winter, analysts were expecting a year-over-year decline in U.S. corn acres of three to six per cent, and this is also supportive of the overall feed grains complex.

In conclusion, feed barley prices have potential to rally $15 to $20/mt through the spring and summer. Feed barley prices will be highly correlated with corn values because of the substitution effect. By the end of the crop year, farmers with malt barley will be selling into feed channels limiting the upside.

H/T: Canadian Cattlemen
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.