Canada: Barley crop might be both short and overpriced

Barley growers might want to price their crops soon, regardless of bullishness among some growers because of the drought-reduced crop.

The market has already compensated for the short crop and there’s going to be less barley demand for the rest of the year, says a Lethbridge feedgrain broker.

“The market’s done its thing,” said Jim Beusekom, president of Market Place Commodities. He expects to see more than two million tonnes of American corn arrive for the western Canadian feeding market over winter.

“I don’t think there will be an advantage to storing barley when you’re at a premium to corn.”

Cash barley in Lethbridge today is about $340 per tonne, while November-December corn is $320. That makes for easy decisions for anxious cattle feeders looking to cover winter needs.

The barley crop is indeed shorter than farmers would have hoped for in the spring. Southern Alberta and Saskatchewan appear to have had poor crops because of drought.

But central Alberta is producing some healthy barley yields, so the crop is probably bigger than was expected in late August. That makes the present premium to corn hard to justify.

“There’s really no upside unless corn goes up,” said Beusekom.

“They can go out and buy as much corn as they want.”

Barley prices could benefit from the lack of frost this fall, which is leaving most of the wheat in good condition and unlikely to be heading for the feed market as a first destination.

To get feed wheat, buyers will have to pay good money.

“The feed wheat market will have to bid-up to export values,” said Beusekom.

Wheat at $9.50 to $10 per bushel today creates another incentive for feeders to switch to corn from the United States. Some poultry and hog rations require wheat, but all feeding industries will likely look for least-cost feed, and that today means getting as much corn into the ration as possible.

Beusekom said it is possible for barley prices to rise, but that would almost certainly only happen as the result of a rally in corn prices. If corn goes up, barley can go along for the ride.

But with two million tonnes of U.S. corn coming into feedlot alley over winter, and feeders able to buy as much as they need out to July, and barley now at a premium to corn, it makes sense for growers to look at pricing their new crop. If farmers want to hedge against the chance of a corn rally taking prices higher, corn or wheat call options are available.

The market already expects less barley and corn is gobbling up demand, so higher barley prices may not last.

“If you add in the barley that’s coming and could come, we’re really in a supply surplus,” said Beusekom.

“That really hasn’t hit home yet or the market would be significantly lower.”

Tags: demand, corn, barley, price, crops, drought, yields, feed wheat, Market