After a sharp rally in June/July 2012 based on supply concerns in the U.S. corn market due to the Midwest drought, barley settled to a low of $252 per metric tonne the week of July 23, 2012 and has remained above its upward-sloping trendline until only recently.
An average price of $297/mt delivered Lethbridge was reported for the week of May 20 which become the spring high, according to data provided in the Weekly Feed Grain Prices reported by Alberta Canola Producers Commission. While the actual high was reported at $299 for that particular week, it is likely that trade took place this spring that reached the $300/mt level.
As noted on the attached chart, the almost year-long uptrend, indicated by the upward-sloping black line, has been broken with current trade in the $280/mt area while larger volume is offered at $285 and is currently being turned down by buyers.
Recent moves higher in finished cattle markets are not supportive to the barley market. CanFax reports both annual and historic high prices for finished cattle have been hit recently. As a result, feedlots are now current in the shipping of finished cattle for slaughter, after having had cattle backed up for the past several months. Another implication is that finished carcass weights have fallen for the past five weeks, indicating that cattle are being shipped at lighter and lighter weights in order to capture current markets. This all leads to an eroding feed demand.
September trade for barley is taking place in the $225/mt range delivered Lethbridge, a $65/mt discount ($1.42/bu.) to current values. The market is sending a clear signal that old-crop supplies should be marketed sooner than later in order to avoid the disappointment of receiving significantly lower prices.
Can barley prices come back? One of the most serious threats is the significant boost in corn production currently forecast for the United States. Goldman Sachs recently cut their forecast for new crop corn prices to $4.75/bu., which is $.58/bu. below today's December close of $5.33/bu. Corn can and will come into Southern Alberta in volume under the right circumstances and can limit any upward potential for feed barley.
Should corn prices reach $4.75/bu. as per the Goldman Sach's projection, a $.70 cent over basis, typical for southern Alberta deliveries, a $.98 CAD/US dollar and an additional $15/mt for off-loading and truck freight would result in corn deliveries at $234/mt (Canadian dollars). Given the relative feed values of the two grains, current barley trade for new crop barley is in line with this sub-$5 corn price.
There is, however, plenty of uncertainty surrounding the U.S. corn crop. What will the seeded acres be? What is in store for summer weather, given that the late-planted corn crop may enter into its critical pollination stage in the heat of the summer? There are perhaps more questions than answers, although the current path of least resistance is to the downside for new-crop futures.
Cliff Jamieson can be reached at Cliff.firstname.lastname@example.org
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