Canada Markets

The price of barley delivered Lethbridge has traded largely between $175 and $178/mt for the past four weeks, consistent with the hesitation found in the corn market which has drifted sideways for six weeks. Current trade is holding above the 67% retracement of the move from the January low of $153/mt to the May high of $218/mt, calculated at $174.45/mt, although with harvest looming and the prospect of increasing supplies of new crop in the weeks to come, holding at this support level may prove to be a challenge.

Last week, Statistics Canada reported barley acres for 2014 at 5.949 million acres, down 1.1 million acres from last year and the lowest acres in Canada reported by Statistics Canada since 1964. Estimated production of 7.164 mmt would also be the lowest production seen since 1968.

The barley price going forward will be affected by the delicate balance between the bearishness of the global coarse grain market, including the U.S. where corn production is estimated to reach a record production of over 14 billion bushels, along with the bullishness of the Canadian barley market due to declining acres and a more normalized yield.

The most recent AAFC supply and demand report (July) indicates a 2013/14 carryout of 2.250 mmt, up 129% from the previous year. Despite this increase in inventory, 2014/15 total supplies could possibly be the tightest on record, while ending stocks for 2014/15 are expected to be a record low, with the most recent AAFC estimate reported at 700,000 mt, representing a tight stocks/use ratio of 7.9%.

A few things to watch: On Friday September 5, Statistics Canada releases their estimates of July 31 stocks. The current estimate used by AAFC is 2.250 mmt, which implies disappearance of 2.096 mmt in the April through July period, given the March 31 inventory of 4.346 mmt. The five-year average disappearance over the same four months is 2.396 mmt, a difference of 300,000 mt. A surprise involving the tightening of 2013/14 ending stocks will in turn impact 2014/15 supplies and be most supportive for prices.

Unlike many other crops, Statistics Canada has tended to over-state their estimates for Canada's barley production in the July report. Over the past five years (2009 to 2013), the July barley production estimates were higher than the final December estimates in three of the five years, with the July estimates above the final December estimates by an average amount of 2%. As well, future crop estimates will include the damage to the crop in many areas due to persistent rains in many areas of the prairies since the July surveys were conducted, another reason to believe that the overall crop size could be lower than reported.

On the flip side is the likelihood for more feed quality grains on the prairies. Malt supplies will be shrinking in many areas of the prairies due to trouble-some rains which will add to feed supplies, while the quality of the wheat harvest will help play a significant determining factor in barley's price trends over the upcoming year.

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

Follow Cliff Jamieson on Twitter@CliffJamieson

(CZ)

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