Canada Markets

Superior crop ratings in western Canada along with pressure on the massive United States corn market due to a sharp rebound in production, both in the U.S. and on a global basis, have led to a sharp move lower in barley prices.

Prices delivered Lethbridge trended higher for most of the first 10 months of the 2012/13 crop year, to a high in the range of $297/mt, before breaking down in late May and early June. Current trade is in the $240 to $250 range delivered Lethbridge, which is roughly where trade took place at the start of the 2012/13 crop year. Current trade is light, however, with feeders buying hand to mouth while eying up more inexpensive supplies in the weeks to come.

The red "X" on the attached graphic indicates new-crop bids for September which are in the vicinity of $200/mt. This price is on par with prices seen in September of 2011, exactly two years earlier. Will we get there? They say that predicting market bottoms is like catching a falling knife, or is dangerous in other words. There is reason to believe that more negative news is yet to come in this market.

First of all is the crop size. Alberta's most recent crop report, as of July 30, rated the barley crop as 87.4% good to excellent, which compares to the five-year average of 67.9% for the crop. According to Statistics Canada forecasts for 2013, Alberta will seed 50% of the country's barley acres.

Saskatchewan's crop is also rated high, with the July 29 report indicating the good to excellent rating at 84%. Averaging the ratings from the past five years, taken from reports as close to July 29 as possible given that the ratings do not appear every week, I come up with a rough five-year average of 74.4% good to excellent, so once again, this crop is well above average. Saskatchewan is forecast to seed 37% of the country's barley crop in 2013, given Stats Canada data.

In the July 17 issue of Agriculture and Agri Food Canada's Grains and Oilseeds Supply and Disposition tables, an estimated yield of 59.5 bu/ac was used for the purpose of estimating the 2013/14 crop size. This yield is actually equal to the five-year average yield for the country, which was a logical choice for a production estimate at the time. It does seem, however, that the crop reports are pointing to a higher crop potential, given their superior ratings as compared to the five-year averages.

Just a 5% increase in yield over the five-year average would add 3 bu/ac to the national yield (62.5 bu/ac) that would result in a production increase of approximately 450,000 mt (utilizing Statistics Canada seeded acreage data) and would result in a 9 million metric tonne crop, which is close to a million tonne production increase from the previous year. The current estimate for 2012/13 indicates a 8.012 mmt crop. The 2013/14 crop size should be the largest crop since 9.528 mmt was produced in 2009. The 62.5 bu/ac yield would match the highest national yield in the past five years, also reached in 2008.

As Ag Canada's July 17 S&D tables already indicate stocks to grow by 200,000 mt to a 950,000 mt carryout at the end of the 2013/14 crop year, increased production could have the impact of pushing ending stocks well above the million metric tonne level, which would continue to weigh on the market.

Given the potential for all of the prairie crops, both logistical challenges and capacity constraints are sure to present themselves this fall. Questions remain surrounding what crop will be sold and when, along with what can the system handle and when. Given the move lower in all commodities, it seems possible that crops like canola will be binned in hopes of price improvement while cash flow needs may be generated by selling crops like barley, which can add even more pressure to the market.

The lowest price seen on the attached chart is $190/mt, seen in the first week of September 2011. This price may act as support should additional pressure be placed on the market.

Of course this crop is not in the bin. The wild-card that remains in today's market has to be the weather. An early frost will do significant damage to the already late crops in western Canada and the corn crop in the U.S. Midwest, at which time, all bets are off the table.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(ES)

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