Long known for our production of high quality protein wheat which has helped shape Canada's identity as an international supplier, it must be hard to accept that superior prices may be obtained in feed channels given today's cash market environment.
Western Canada is an island when it comes to feed production as barley acres are in a long-term decline, while feed grain supplies show year to year variability due to a reliance on adverse weather to down-grade crops and create supplies of feed.
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Since the March 28 USDA report, corn prices have corrected 94 3/4 cents lower, or 12.9%, as of the March 27 close. Feed barley buyers are seeing no relief in barley prices due to a combination of tight stocks, an unwilling seller and seasonal accessibility issues due to soft yards and roads. Road bans will soon compound this situation. Feed barley remains at or near record high prices as we head towards the end of the crop year to a forecast 800,000 mt barley carryout, while cattle feeders chalk up losses in the range of $200/head.
I've mentioned off and on over the winter the notion of wheat moving into the feed sector. This has perhaps been challenging given the lack of low-quality wheat supplies, while ergot in many samples has made some wheat unfit. Given the recent strength in barley combined with the trend lower in the wheat market, the possibility exists that even high quality protein wheat may generate a higher return in the feed sector.
The attached chart shows the trend in barley prices delivered to Lethbridge, Alta. over the crop year (blue line) compared to the price of hard red spring wheat, as calculated by the nearby MGEX future less the average prairie-wide basis that I calculate on a regular basis. While the trend for barley is sloped upwards, the wheat price is diverging to lower levels. While the grain producer may not be a seller of high quality wheat into this market today, should this trend continue, these two markets will arbitrage which may create opportunity for wheat sellers, given their location, although may eventually dampen the spirits of the barley marketer as potential wheat supplies may cap barley's further price potential.
Cliff Jamieson can be reached at email@example.com
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