Canada: Old and new crop barley prices under pressure throughout this summer
Old- and new-crop barley prices have been under pressure throughout the summer, the Canadian Cattlemen reported on August 12.
For one thing, old-crop values have been softening due to a lack of demand. Most feedlots have sufficient volumes of corn booked through August until new-crop barley comes on the market. Second, farmer selling has increased. Falling prices tend to spur producer selling. Third, the upcoming crop appears to be developing under favourable conditions. Western Canada has received normal- to above-normal precipitation throughout June. The weather forecast looks favourable through July. Feeder cattle prices have been percolating higher since June as feedlot operators factor in a lower cost per pound gain.
Canadian farmers seeded seven million acres of barley this spring according to Statistics Canada. This is down 1.2 million acres from last year but up 300,000 acres from the five-year average. Using a traditional abandonment rate and a five-year average yield, barley production has the potential to reach 9.7 million tonnes, up from the 2021 output of 6.9 million tonnes and up from the five-year average crop size of 9.2 million tonnes.
At this stage, local analysts are forecasting barley exports to reach 3.3 million tonnes with China taking 2.8 million tonnes of this total volume. The remaining crop will trade to other captive markets such as Japan. The main barley suppliers to China have been France, Canada, Australia and Ukraine due to phytosanitary conditions. China imposed an 80.5 per cent tariff on Australian barley in May of 2020 for various reasons. Before the recent Olympics in February 2022, Russia’s Vladimir Putin negotiated an agreement with Chinese officials allowing Russian wheat and barley to trade to China. The main suppliers to China for the 2022-23 crop year will be France, Canada and Russia. Chinese demand for the 2022-23 crop year is estimated at 10 million tonnes. Russia will produce about 20 million tonnes of barley this year and export six million tonnes.
Canadian seed usage is approximately 275,000 tonnes per year while domestic food and industrial usage average about one million tonnes. This leaves between five to 5.5 million tonnes for feed usage. The Canadian barley carryout doesn’t drop much below one million tonnes each year. This is considered bin-bottom levels.
Another major factor to consider this year is Canadian feed wheat production. Over the past couple of years, the Canadian wheat crop has been high quality. Wheat moving into domestic feed channels was priced on an equivalent basis to milling or food values. This will change in the 2022-23 crop year. The wheat crop in Manitoba and eastern Saskatchewan is approximately one month behind normal development. There is a high probability that six million tonnes of wheat will be feed quality. This wheat will actively trade into domestic feed markets. Canadian non-durum spring wheat production has the potential to reach 24.9 million tonnes, up from the 2021 output of 16.0 million tonnes and up from the five-year average of 22.9 million tonnes.
The world coarse-grain fundamentals are also bearish. Brazil is currently harvesting its second corn crop, weighing on the world corn market. Total Brazilian corn production is projected to finish near 116 million tonnes, up from last year’s output of 87 million tonnes. The Argentine corn crop was 53 million tonnes, up from the year-ago crop size of 52 million tonnes. The U.S. is on track to have good yields. The 2022 crop size has the potential to finish near 370 million tonnes, down only 14 million tonnes from the 2021 crop. The year-over-year increase in Brazilian exports will easily offset any shortfall from Ukraine.
In conclusion, the barley outlook is for softer prices during the 2022-23 crop year. The barley crop is developing under favourable conditions. Canada will have approximately six million tonnes of actual feed wheat production, which will weigh on the domestic feed complex. Chinese demand for Canadian barley is limited as Russia has a more favourable trade status than Canada. The world coarse grain complex is also somewhat bearish due to the increase in South American corn production and optimal growing conditions in the U.S.
The Canadian commercial elevator system will be plugged at harvest. Farmers will be forced to sell to domestic feedlots because of limited elevator space. The barley market will likely make seasonal lows during the last half of September.
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