Russian Export Ban Creates Barley Export Opportunities – for Sep. 13, 2010

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Extreme volatility in world grain prices has created significant price opportunities for Prairie farmers. Feed barley sales have been a recent source of attention, given a huge price rally and subsequent decline in the overseas price structure. To date, we have marketed more than 250,000 tonnes of export feed barley through our Guaranteed Price Contract (GPC) program – the largest volume in three years. Offshore feed barley prices have been much higher than domestic values.

Farmers who have participated in cash sales have received some of the highest prices available to any producers in North America. Should there be additional profits generated from the cash program over the course of the year, farmers will receive even more. This program is designed to ensure that producers are the ones who receive the benefits of a rising market.

We recognize that not all farmers have the opportunity to participate in limited-volume cash contracts that are usually filled very quickly. That is a downside of any cash-buy program. The CWB is also committed to maximizing farmer participation in higher-priced sales. To do so, we are planning to also make feed barley sales through the pool if a good opportunity arises, in an effort to provide farmers with additional options.

GPCs allow the CWB to move quickly to take advantage of short-term opportunities, sourcing barley supplies in appropriate volumes. The CWB has adopted this approach in response to farmers’ own requests and it has worked well, but these opportunities can arise quickly and erode quickly. International feed barley prices as of September 1, for example, were about US$50 per tonne ($1.09 a bushel) lower than the market peak in August.

Premium over domestic

Price signals have been provided to farmers though the GPCs, the Pool Return Outlook and special market updates posted on our website. Given the volatility (which has seen the offshore price structure in some markets shift as much as US$30 per tonne, or 65 cents a bushel, in a single day!), we must also be sure that the up-front cash prices offered to farmers will not exceed net revenue, taking into account the days that can elapse between setting GPC values and negotiating sales prices, as well as unsold grain resulting from shipping tolerances.

The CWB’s first priority is to maximize returns to farmers. Our export sales have been made at values well above $200 per tonne (in-store Vancouver), far surpassing the domestic price. Although some market watchers have argued that offshore barley cash sales should have immediately boosted domestic values, we have actually seen little movement. This could be due to a number of factors, including the domestic availability of other feed options such as wheat, corn and dried distillers’ grain. Similarly, in the U. S., the country elevator price structure has increased somewhat, but remains well below offshore values and consistently below Canadian prices.

Bubble has shrunk

The market surge this month occurred over a very short time surrounding Russia’s announcement of an export ban, which sent buyers and traders scurrying to cover sales commitments – particularly to Saudi Arabia. This bubble of activity is now over and, although prices remain higher than previously, they have fallen off significantly. Recent cash sales by the CWB have been made at a range of prices, reflecting the markets at the time of each sale. During this volatile period, some sales were made at very positive gross margins and others at much tighter margins.

As long as Black Sea barley stays off the market, world exportable supplies are expected to remain relatively tight and there should be additional opportunities to trade Canadian feed barley offshore at attractive returns. This should eventually push the domestic price structure higher although, as noted, we have not seen that to date. The GPC remains the best price signal that we can offer farmers, given the volatility of the markets and the sporadic nature of sales activity in Saudi Arabia, which is by far the world’s largest importer of feed barley.

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