Canada Markets

A number of signs are pointing to an improved malt barley market as seen in developments in the European Union market, one of the world's major exporters of malt barley.

The winter of 2011/12 saw a large winter-kill in European crops, which led to a large acreage of spring-planted barley with many of the lost winter crops re-seeded to barley. This led to an over supply in malt barley production of some 2 million metric tons in 2012, with production of 10.1 million metric tons vs. the 3-year average of 8.4 mmt. This resulted in a sharp reduction in premium that malt typically fetches over feed barley, from a long-term average suggested to be E35-E40/mt, down to almost even money.

The end-result of this situation is that malt barley producers chose to market production into feed channels as opposed to dealing with maltsters in the high quality malt market for little premium. It is estimated that 1.5 mmt of the 2 mmt of excess production has since been consumed in the feed market in the EU.

Moving ahead to 2013/14, the escalating price of feed barley due to tight feed supplies globally combined with a malt market which trended lower under pressure led to more winter-crop feed varieties being planted, which will undoubtedly lead to less barley acres planted in the spring crop which includes the malt varieties. Total barley acres could be down as much as 10%. There was less winter-kill than the year before, therefor less ground re-seeded to barley.

Forecasts by Coceral and the European Commission have estimated yield across the 28 member countries at 83 bushels/ac, which is viewed as a lofty goal and hasn't been reached in the past 4 years.

Then there's the weather. Europe is facing the same cold and late spring as faced on the Canadian prairies and many regions of the northern hemisphere. Barley planting is behind, while some areas of central Europe that should be finished have yet to start. Many acres are being seeded into cold and wet soils, which can negatively affect the yield results from the crop.

New-crop malt barley has begun to once again trade at a premium to feed, given the expected tighter supplies which will be available. Agrimoney.com reports the premium in France of malt over feed barley to be at E50 to 55/mt, where 1 euro = $1.31 Canadian.

The Paris Liffe market is just one of the signals that are watched by the Canadian industry for signs of price direction. The attached chart shows prices recovering from an early March low although the uptrend stalled after an intra-week high breached the 50% retracement level at E255.25/mt. The bottom study shows a bullish cross-over of stochastic indicators taking place in early March while in over-sold territory, while indicators are gradually trending higher in neutral territory, showing positive momentum.

Also of interest will be signs of growing commercial bullishness as seen in the May/November or old-crop/new crop spread, as well as signs of growing commercial optimism as seen in the November/January spread. At present, these spreads fail to indicate a growing trend towards increased bullish sentiment, although these will remain on the radar.

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

(ES)

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