With corn prices rocketing, the natural assumption is that barley will also reach record highs.
But one Winnipeg based market analyst is not convinced that barley has unlimited upside.
Brenda Tjaden-Lepp, co-owner of Farm Link Marketing Solutions, believes barley’s price has a firm ceiling because large crops in Ukraine and the European Union will compete with Canada for offshore export sales.
“We had these enormous exports of feed barley in ’07-’08 and I don’t think we can realistically expect to get back to those levels,” said Tjaden-Lepp, noting that Canada will export about 3.2 million tonnes this year, thanks to poor crops in Australia and the Black Sea region. An average year, she said, is more like 1.8 million tonnes of exports.
Read Also
European wheat production makes big recovery
EU crop prospects are vastly improved, which could mean fewer canola and durum imports from Canada.
Barley prices have risen over the last two weeks, most likely riding on corn’s shoulders. The October 2008 contract on ICE Futures Canada has gone from $238 per tonne ($5.19 per bushel) June 4, to close at $264 per tonne ($5.75 per bu.) June 16.
But a continued barley surge doesn’t add up, Tjaden-Lepp said, considering reduced export expectations and dwindling domestic demand because of a suffering livestock sector.
Corn prices, meanwhile, continue to show unprecedented strength.
A cool and extremely wet spring in the U.S. Midwest has pushed corn to record levels, with the July 2009 contract trading above $8 US per bu. earlier this week on the Chicago Board of Trade.
About 250 millimetres of rain fell on parts of Iowa, Illinois and Wisconsin during the second week of June, flooding cropland and raising concerns over lower corn yields, assuming that farmers can get on the land to plant.
“We’ve received 10 inches of rain, or more, in the last week,” said Neil Wubben of the Iowa State University extension service in Mitchell County, in the northeastern corner of the state.
Wubben toured the county last week and, amazingly, saw that fields in the county did not resemble lakes.
“I was surprised by the amount of water I did not see standing …. I would say that our corn crop is not as severely damaged as one might think,” he said, noting that most of the flood damage is from runoff and the related damage to infrastructure.
Wubben is more optimistic about the 2008 corn crop than the U.S. Department of Agriculture. In a June 10 report, the USDA lowered its corn yield forecast to 148.9 bu. per acre from 153.9 bu. in May. As a result, it projects the 2008 corn crop at 11.7 billion bu., down 390 million bu. from its prediction in May and down sharply from last year’s record crop of 13 billion bu.
Most analysts believe USDA will lower its corn acreage number in its June 30 report.
Reuters News Agency reports at least 3.3 million acres of seeded corn have been lost, based on a poll done by FarmFutures.com. Analysts also believe an additional two million acres simply won’t be seeded
Now that the damage has been done and corn has hit new highs, analysts wonder if prices can go higher.
The situation reminds David Drozd of 1993, when flooded cornfields led the nightly newscast.
“In July (of 1993) we saw corn up to its ears in water, in the front page of business magazines,” said Drozd, grain marketing adviser and president of Ag-Chieve in Winnipeg.
Corn hit its peak shortly after those headlines and then dropped, as speculators followed their usual pattern of buying the rumour and selling on the news.
The billion dollar question, however, is whether this year is different?
“This time around, maybe we won’t grow enough corn,” said Drozd, referring to the USDA’s drop in yield estimates. “And we’ve lost more yield since that report.”
