Canada Markets

After briefly touching on it last week, I wanted to dig deeper into the barley situation given how unique it is, how complacent the market has become, and the risks involved should pollination issues prevent the U.S. corn crop from producing the bin-busting record yield markets have been pricing in.

In a world where markets have become obsessed with the growing size of corn and soybean crops and seemingly convinced they will satisfy everyone's needs, complacency should be left to others and risk managers and grain marketers should be on high alert.

The Canadian barley market is a prime example. With USDA recently confirming Agriculture and Agri-Food Canada's (AAFC) analysis estimating a 2025-26 ending stocks level nearly as low as the one following the devastating drought of 2021 (which set a new low since records began in 1960), markets should be a little more concerned. Especially since global ending stocks are set to fall to 42-year lows as well, keeping export interest for Canadian barley high. But instead, barley prices have drifted lower for the past six weeks along with declining corn prices as crop prospects improved. According to PDQinfo.ca, the average Southern Alberta barley price has fallen $17.90/metric ton (mt) from mid-June highs.

The complacency comes from recent history when corn imports filled in to offset the small crop of 2021. In fact, corn imports into Canada went from 1.58 million metric tons (mmt) in 2020-21 to a record 6.141 mmt in 2021-22. Given the record size U.S. corn crop most are expecting, it is assumed a repeat will occur in the coming year, just to a smaller extent.

Following competition from global corn importing countries that prevented purchases that were economically viable, USDA reduced their estimate of corn imports into Canada for 2024-25 to 1.7 mmt from 2.814 mmt the prior year. For 2025-26, USDA now estimates imports will increase 600,000 mt to 2.3 mmt to help fill the void left by the small barley crop and tight supplies. But what if there is a repeat of 2024-25?

Even though there are many individuals trying to outdo each other with higher private corn yield estimates, there are plenty of pollination issues that have come to light recently. From tight tassel wrap to much-above-normal overnight low temperatures, especially in the Eastern Corn Belt, resulting in tips not being pollinated fully, there are a variety of factors that could prevent a record corn yield and interfere with supplies being available for Canadian import -- at a low price at least.

In fact, even with USDA's increased production assumptions, supplies are expected to be relatively tight as 2025-26 corn exports are expected to run strong again (with plenty of competition for Canada likely). Ending stocks in the major exporting countries (Argentina, Brazil, Russia, South Africa & Ukraine) are expected to fall over 3 mmt from 2024-25 levels to the lowest seen since 2011-12. That is thanks to a significant increase in their own domestic consumption (up an estimated 21.086 mmt in three years) that has resulted in their exports declining from the peak in 2021-22. In short, a repeat of the old-crop competition for exportable corn supplies from the U.S. could easily be seen for the new crop as the world has few alternatives, making it difficult for Canada to count on cheap corn imports.

Getting back to the reason we are likely to need those corn imports, both AAFC and USDA are looking for a decline in seeded area to limit production potential for 2025-26. USDA is a little more optimistic on yield, leaving their production estimate unchanged in July at 8.2 mmt. AAFC had reduced their expectations due to the low seeded area to 7.9 mmt. It's worth noting that Alberta rates their barley crop at 67% good to excellent following midsummer rains, while Saskatchewan pegged theirs at 58% good to excellent as of mid-July. The variability of the growing conditions will make it difficult to assume anything other than an average yield for now.

Both are looking for feed, waste & dockage to remain fairly flat for 2025-26 with the USDA holding steady at 5.2 mmt while AAFC has reduced its estimate to 5.028 mmt due to tight supplies.

Regarding exports, both are looking for a slight reduction from last year due to the same tight supplies, but a more significant one compared 2023-24. In fact, USDA is looking for the two-year decline to be about 15% compared to a 10.5% reduction by AAFC for 2025-25 versus 2023-24.

It's worth noting that feed users can't look to the oat market for much help as a similar situation is playing out in that market. A couple of years of declining production have resulted in minimum pipeline ending stocks levels of 350,000 mt after exports and feed use are reduced in 2025-26.

In summary, both barley consumers and producers in Canada should be aware of the degree of tightness in the barley market and the importance of corn imports. Anything that might interfere with them such as yield developments should be monitored closely with the impact on risk management and marketing strategies already considered.

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I welcome feedback along with any suggestions for future blogs. My daily comments can be found in Plains, Prairies Opening Comments and Plains, Prairies Quick Takes on DTN products.

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

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