Canada Markets Blog

With February typically being a slow news cycle period, it came as no surprise there were few adjustments when Agriculture and Agri-Food Canada (AAFC) updated their supply and disposition estimates on Wednesday. The only change outside the troubled feed grain sector was a 50,000 metric ton (mt) increase in canola imports which carried through to an equivalent increase in ending stocks. That highlights the tight supply situation and profitable crush margins in that market -- but that's a discussion for another day.

The extent of adjustments made to the feed grain supply and disposition estimates highlighted how much effort went into figuring out how the feed consumers might make it through until the harvest of 2025. Especially considering Feed/Waste/Dockage (FWD) use was cut in every feed grain but durum wheat, with that exception increasing out of necessity and availability.

Corn witnessed the greatest changes with all adjustments being traced back to tight supplies in major exporting countries (as discussed in the previous blog: https://www.dtnpf.com/…). Not only were imports cut 100,000 mt as suspected but exports had to be raised by a similar amount -- making Canada a net exporter for the year.

Imports were reduced due to high corn prices within the U.S. thanks to very strong exports of their own given the lack of competing supplies on the world market. The same reason led to exceptionally large Canadian exports in the fall of 2024 to Ireland and the United Kingdom, of all places. The two countries alone took 575,217 mt in the first four months of the marketing year (beginning in September for corn and soybeans) compared to just 345,572 mt the previous year. That also suggests further increases in export estimates could be on the horizon given the lack of new global supplies until Brazilian second-crop (safrinha) corn is available with it just being planted now.

Even though the exports would have been out of the East Coast, the lack of imports into the West (as highlighted by the accompanying chart of nearly nonexistent imports into Alberta) resulted in a 200,000-mt cut in FWD from last month, leaving the FWD use estimate 412,000 mt below last year. Unfortunately, given the pace to date and market dynamics -- any future adjustments are likely to see even further declines in imports and corresponding FWD use.

To make matters worse, AAFC had to acknowledge the strong barley export pace to date by increasing their export estimate by another 10,000 mt. That came straight out of FWD use, taking the current year's projection to 59,000 mt below last year with no other changes being made.

It's worth taking a moment to review the export pace to date given the implications. AAFC still expects a lack of supply will result in a reduction of 63,000 mt in exports compared to last year, down 2.1%. The problem is the trade didn't get the message and actual exports in the first 27 weeks of the marketing year were 146,400 mt (15.2%) ahead of last year's pace according to the Canadian Grain Commission's weekly grain statistics report. That amounts to a 209,400 mt difference in demand assumptions if the pace for the remaining 25 weeks of the marketing year simply matches last year's. Quite a concern considering the ending stocks are only expected to be a minimum pipeline level of 700,000 mt.

The big-picture problem of trying to cut exports is the world needs our barley. Following two consecutive years of low production, global supplies are near record lows and total exports are expected to fall almost 6 million metric tons (mmt) from last year by necessity (according to the most recent USDA update).

A 2024 oat crop that turned out to be larger than expected helped the feed situation in earlier updates but for the February estimates, FWD use was cut by 90,000 mt due to stronger exports than previously suggested. Compared to last year, oat FWD use is expected to decline 42,000 mt according to AAFC.

Wheat is expected to be the savior for the feed grain market compared to last year, but it too had FWD use cut on a month-over-month basis. It is projected to increase 447,000 mt compared to last year (by necessity) but that total is down 85,000 mt from the January estimate. Given the quality being much above normal and tight supplies in major exporting countries, interest from the export market has been strong. Attractive basis levels have resulted, making this an expensive substitute in rations if the remainder of the year plays out as AAFC suggests.

Bringing the feed alternatives together, FWD use estimates from the four sources were cut by 385,000 mt from last month. So, there is no room for error with many estimates potentially seeing adverse adjustments in future updates.

Prices have responded to the developments. According to PDQ, southern Alberta feed barley values have increased from a low of $248.61 mt ($5.41 per bushel) set in late August to $299.15 ($6.51) as of Feb. 14. On a sustained rally, resistance could be seen at an old support level of $350 mt or $7.62 per bushel in the spot market. For comparison, the reason for corn imports being so low is the quoted price for Lethbridge delivery was $334/mt or $8.48/bushel on Feb. 14 according to the Government of Alberta Weekly Market Review.

Economic theory would suggest it will take higher prices to slow exports and make it economically feasible to increase corn imports from the U.S. to offset any assumptions that may be off. Being patient and making incremental sales that reward rallies along the way continues to appear to be an appropriate marketing strategy for sellers at this point. Feed users may well want to use any setbacks to secure supplies.

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Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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