The Canadian Wheat Board is trying to persuade farmers that malting barley is still a good cropping bet.
The marketing agency hopes producers don’t become distracted by the narrow spread between malting barley prices in the 2006-07 Pool Return Outlook and today’s cash market prices.
“We’re very bullish for next year and long term for malting barley,” said Bob Cuthbert, who oversees malting barley sales for the wheat board.
“We believe the premium for malting barley will get back to a more normal historical premium (in 2007-08).”
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In a highly unusual move, the CWB released an early estimate of its first malting barley PRO prices. It expects 2007-08 special select two-row barley to receive $230 per tonne (in-store Vancouver) and $215 per tonne for six-row.
Those prices are $25 per tonne above present 2006-07 malting barley PRO values.
Cuthbert said the wheat board and buyers in the brewing industry are worried by reports that farmers may already be buying non-malting varieties of barley seed because they assume there will be no premium for malting barley next year.
“We want to encourage them not to abandon malting barley, not to make a wholesale jump to feed varieties,” he said.
Cuthbert said the apparent lack of a premium for malting barley applies only to the spread between current crop year PROs and the spot cash feed market, but those can’t be directly compared.
PROs reflect sales made over the course of a crop year, so they will often diverge from cash market prices when the cash market either spikes, like now, or slumps.
Because many sales are made up to a year in advance of delivery, swings in PROs tend to lag cash market changes. Lower-priced sales made in 2005-06 were carried into the 2006-07 pool, and higher priced sales being made now will be carried into the 2007-08 pool, Cuthbert said.
Producers in North Dakota and Montana are facing a similar loss of malting barley premium, Cuthbert said, because feed and malting barley bids have recently surged. Most American growers must sign contracts before growing the crop, so 70 to 75 percent of U.S. malting barley will have been locked in at prices $1 per bushel less than today’s spot cash market bid.
Cuthbert said the malting barley market outlook for 2007-08 is bullish. Australia has no crop to sell until its next harvest. European supplies appear to be tight.
That will leave Canada in an enviable position and able to regain the malting barley premium to cash feed barley prices that it has held for many years. Not only is there room for a similar amount of malting barley this coming year, but “we need malting barley acres to probably go up 10 to 15 percent.”
Cuthbert said the CWB hopes that by releasing a pre-PRO estimate it will stop farmers from abandoning a long-term profitable crop.
“There are farmers who are waiting for a signal,” Cuthbert. Said.
