“The PRO at this point is not reflective of the current market, which is hugely volatile.”
– MAUREEN FITZHENRY, CWB
The Canadian Wheat Board has moved to protect record returns to its malting barley pool from volatile and declining world prices.
The CWB announced January 29 that further malting barley sales will now be made through its CashPlus option. That way the value of the pool won’t be eroded by lower-priced sales, said CWB spokeswoman Maureen Fitzhenry.
“The other thing it does is it puts out a market signal that’s actually relevant and reflective of the current market situation,” Fitzhenry said in an interview. “The PRO (pool return outlook) at this point is not reflective of the current market, which is hugely volatile. I think (current world) values are down $2 to $3 a bushel from these record-high PRO amounts.”
The latest PRO, with freight and elevator deductions backed off to Saskatchewan, is $5.50 a bushel for Special Select two-row malting barley, versus last crop year’s (2007-08) final return of $5.13.
To put it into perspective, the 10-year average in-store port return is $4.47, and the current PRO is $6.97 – 56 per cent more than the average and seven per cent higher than last crop year’s final return, Fitzhenry said.
“So it’s (the current pool’s value) worth protecting,” she added.
Not only are farmers looking at a record-high malting barley pool return, the CWB expects to export a record volume of at least 1.4 million tonnes. And the pool itself, while probably not a record number of tonnes at around two million, will be larger than average, Fitzhenry said.
The CWB will select more malting barley this crop year, but given ample world supplies and the suffering world economy, prices will be much lower than they were. That said, Fitzhenry still expects prices will be $1 to $1.50 a bushel above the domestic feed barley market, depending on the farmer’s location.
“I think farmers should stay in contact with selectors they want to do business with and ask if there are opportunities available and hopefully farmers will be clear as to what the price possibilities are and be able to move forward with their business decisions,” she said.
Under CashPlus, the CWB tenders sales to barley selecting companies, which in turn contract with farmers at cash prices for their barley. The CWB says the program allows farmers and selectors to operate much the same way they would in an open market, while retaining benefits of single-desk selling such as marketing discipline and price differentiation.
With this change, farmers can compare the prices they can get selling barley for malting versus the price available in the open domestic feed market. In the past those signals were sometimes misleading and farmers didn’t get the best returns they could.
So how did the CWB get such high prices earlier and why have prices plunged? Bruce Burnett, the CWB’s director of weather and crop surveillance and market analysis, says the CWB typically makes malting barley sales early for well into the future. One reason is to get ahead of competition from Australia, where barley is harvested later.
This year maltsters were more anxious than usual to cover some of their needs and did so at a time when all grain prices were higher than now.
Europe harvested a big barley crop. Canada did too and much of it is malting quality. With lots of supply and uncertainty in the world economy, all grain prices, including malting barley, have weakened in recent months.
This is the first time the CWB has taken such action, but it has the legal authority to do it, Fitzhenry said. She added the pool is not totally closed.
“There will still be some limited new selections continuing to go to the pool as they (domestic maltsters) meet their existing commitments, but those are minor exceptions and most of it will be through CashPlus,” she said. [email protected]