Opportunity Good barley prices present an opportunity to get rotations away from canola
The drought in the U.S. has hit corn supplies hard and boosted barley prices, a situation that’s likely to persist at least into next summer, says at Alberta Agriculture provincial crops market analyst.
Charlie Pearson says the markets make this winter a good time to think about extending rotations that have been shortened to focus on canola. “The extremely tight U.S. corn supplies have cut world feed supplies by over a third,” said Pearson. “Barley is benefiting from the bad luck of U.S. farmers. In fact, U.S. corn supplies pretty much dictate world feed grain prices. Western Canadian feed barley supplies are relatively tight too, impacted by fewer acres and the heat last summer.”
Malt barley supplies are also tight, but it hasn’t translated into much of a premium. Malt barley was trading around $6.25 per bushel last month, compared to a feed barley price of $5.75 in Red Deer and 25 cents more in Lethbridge. For many farmers that’s probably not enough to pay for the hassle of having your grain selected and the extra storage and interest charges of waiting for a call to deliver, said Pearson.
“Malt barley has suffered two ways. Overall, the malt barley quality isn’t bad, but North American maltsters aren’t happy with it, the kernels are smaller and the protein is higher than they like. Prices could increase with more domestic and U.S. demand.”
On the world market, the European crop is OK for quality, but Argentina has had too much wet weather. Australians have had problems too, with some parts too dry and frost in others, but we have to wait a bit to get more information on the quality of their crop, said Pearson.
“There’s going to be a bit of sticker shock for some buyers. Some won’t be willing to pay the current price, especially when the grain is not top quality. China will change their malt barley specs on price — I expect the livestock opportunities in Alberta will pay more than the Chinese market will pay for malt. I advise farmers to be opportunistic and take advantage of chances to sell feed barley for export,” he said.
It’s likely there’ll be a vessel or two of feed barley exported to Japan, and maybe some to Saudi Arabia and one or two other countries. But, the timing will depend on when ships can get in and out of Vancouver, said Pearson.
“The grain companies will be putting packages together and the business will happen quickly, so take advantage of the opportunity. Also, a rally in the corn market could mean a chance to sell into the U.S. markets, especially to California dairies.”
Domestic cattle demand
Use of corn for ethanol has dropped 10 per cent this year, but that’s still 40 per cent of the U.S. corn crop. Pearson expects it will stay about that level with some ethanol plants now shuttered, but ready to quickly ramp up production when corn prices drop. From all the market factors, Pearson sees good prices for barley persisting for a while. He thinks that will make for some good marketing opportunities for barley growers and, along with good prices for wheat, will keep returns from barley good at least for 2013 crop.
The cloud on the horizon, Pearson says, is cattle numbers.
“Cattle numbers are definitely coming down. That’s a concern down the road, numbers may not go up as high as before as our aging population eats less meat. But, as incomes improve in the developing world, there are more export opportunities,” he says. There are challenges for the North American livestock industry. And, as cattlemen increase their cow herds, they hold back heifers and cut the number of animals on feed. That will mean less demand for barley forage and grain.
Pearson sees the good market prospects for cereals as well as pulses and oilseeds as an opportunity for farmers to focus on agronomy and net return from each crop rather than focusing on canola. “These markets are a chance to pull back from pushing canola,” he says. “Look at the cost side of producing each crop and consider the sustainability of your rotations.”