Canada Markets

Stocks-Use Ratio vs Price for Lethbridge Barley

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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This scatter chart highlights the average annual price for feed barley delivered Lethbridge, as well as the corresponding stocks-to-use ratio, with the blue dotted line representing the trend. The red arrow represents the current AAFC forecast for 2019-20, which leads to an approximate price of $175/mt. (DTN graphic by Cliff Jamieson)

Wednesday's radio report from Marketplace Commodities quoted feed barley down $4/metric ton (mt) to $224. Weekly Alberta Agriculture data reports the average price at $235/mt for the previous week and $240/mt in late January, representing the upper end of the range of reported bids.

Statistics Canada recently estimated Dec. 31 barley stocks at 5.959 million metric tons (mmt), up 20.6% from Dec. 2018 and 4.3% higher than the five-year average. Based on the January through July disappearance in 2018-19, ending stocks for the current crop year would come in at 1.879 mmt, while using the five-year average disappearance, stocks would total 1.626 mmt. Both projections are well above the 893,000 mt carried out of 2018-19. The current AAFC estimate is a carryout of 1.8 mmt.

The attached chart shows the relationship between the stocks/use ratio for feed barley and the average crop year price reported by AAFC for the 2000-01 through 2018-19 crop years. Current government estimates would result in a stocks/use ratio of 18.9% for 2019-20, as indicated by the red arrow on the chart, while the long-term trend would indicate that such a ratio would lead to an average of roughly $175/mt. This compares to the current AAFC price range estimate of $210 to $240/mt for the 2019-20 crop year.

The $175 average for the crop year seems far from possible, with the crop year half over, with Alberta Agriculture's weekly Lethbridge price dipping as low as $205/mt for one week in September (upper end of the weekly range), the lowest price shown so far this crop year. At the same time, current data would suggest upside potential may be limited.

Of the 19 years of data shown on the attached chart, the stocks/use ratio has been higher than the current 18.9% only six times. The average annual cash price ranged from $110/mt to $188/mt over the six years, while averaging $151.83/mt.

One bearish factor that may weigh on this market as we near spring is the outstanding acres to be harvested. When the final crop reports were released, Manitoba reported 1% of their barley acres yet to be harvested, Saskatchewan reported 3% and Alberta reported 6.9%. At Statistics Canada's provincial yield estimates, this acreage could lead to close to 500,000 mt of production.

A supportive feature for this market is the U.S. corn futures. While the current trend is sideways, range-bound trade, DTN's average cash bid or the National Corn Index is reflecting the strongest basis seen in seven years at 12 cents under the March futures. Grain stocks are clearly tighter than current estimates would indicate, with a spring harvest pending across northern states.

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