Canada Markets

Barley prices seem heavy at the moment. The feed industry is largely covered for a period of time with purchases made in recent weeks. The attached chart indicates barley largely trading in a range between $280 and $284 since mid-October, using Alberta Agriculture's weekly feed grain price data.

Time will tell whether this market has upside potential moving forward. One could build a case for movement in either direction, based on the following bullish and bearish factors:

Bullish Factors

Barley stocks are tight. Statistics Canada recently announced Dec.31 stocks to be 5.088 mmt, which is 7.2% lower than Dec. 31, 2011 and 14.7% below Dec. 31, 2010. At 700,000 mt, the forecast 2012/13 carryout is approximately 44% below the estimated 2011/12 carryout of 1.247 mmt.

Producers are not aggressive marketers of barley, along with many other grains. This is not unique to the Prairies, as corn basis levels in the U.S. Midwest are also historically strong, due to producer reluctance to sell. There is a perception among many in the industry that current cash flow is ideal, while producers have more options in terms of what they sell and when in terms of generating cash flow due to the grain market deregulation on the Prairies. A single load of canola at today's market may postpone marketing plans for feed grains.

Barley prices are seasonally high in the spring road ban season. Grain is more expensive and difficult to access due to wet yards and road bans, while producers are focused on spring seeding and not on loading trucks.

One last concern hanging over the barley market is the ongoing threat of a return of the U.S. Midwest drought. Markets have been relieved this week due to the forecast for moisture over the Midwest, but far more moisture is needed and time will tell what the impact of the current moisture deficit will have on crop production.

Bearish Factors

Recent corn futures markets have been flat, providing little spill-over support to Prairie feed markets. Forecasts for moisture over regions of the U.S. Midwest this week are providing relief to the non-commercial or investor segment of the corn trade, while forecasts for a record U.S. corn acreage this year is viewed by many as an opportunity to replenish the current tight stock situations, also keeping markets at ease.

The USDA has recently come out with their 10-year Baseline Projections to forecast supply and demand through to 2022. 2013/14 projections involve a forecast yield of 163.5 bu./acre on 96 million planted acres to produce a 14.4 billion bushel corn crop. The carryout is forecast to reach 2.067 bb, a 227% increase from the current 632 million bushels forecast for 2012/13. Should this happen, this would achieve an increase in the stocks/use ratio from 5.6% to 15.9%.

Pressure on the cattle markets has not helped the barley market. Since the January high for the CME February live cattle future of $134.325/cwt, prices closed at $125.100 today, or down close to 7%. This may be a time of seasonal weakness for live cattle, with analysts looking for current tight supplies to give a boost to futures trade in the weeks to come.

Canadian cattle producers remain at a significant feed cost disadvantage to U.S. producers when it comes to barley. Current barley offers are in the neighborhood of $20/mt above feed corn in Nebraska, taking into account the relative feed values. Combined with lower fed cattle selling prices, cattle producers are squeezed and not looking to chase grain prices higher.

Another implication for the market is an increase in feeder cattle movement to the U.S. Canfax reports that feeder cattle exports to the U.S. as of the week of Feb. 2 was 6,260 head, which is up 75% from the previous week. Year-to-date exports of feeder cattle were 15,059 head, which is up 60% from last year. This is a trend that is expected to continue, given the current imbalance in feeding costs.

One last reason that barley may not see significant upside is the effect of wheat in the feedlot ration. CWB data indicates No. 1 red 13.5% protein wheat to be worth $328/mt track Vancouver today. If that was backed off to a southern Alberta point, it is possible that the current $298/mt wheat bid into the Lethbridge feeders could generate a higher return. The current lack-luster wheat market may keep a lid on barley prices.

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

(ES/)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.