Will drowning corn lift barley and sink ethanol?
The weather problems in the U.S. corn belt remind many people of the flood of 1993 when relentless rain soaked fields and the river topped levees on the Mississippi.
U.S. corn production crashed and American imports of Canadian feed barley in 1993-94 soared tenfold to 1.79 million tonnes from 174,000 tonnes the year before.
A feed-deficient U.S. bought another 1.26 million tonnes of Canadian barley the following year.
Those two years marked the high water mark for barley exports to the U.S. and although cross-border exports might be strong this coming year, they are unlikely to soar like they did in 1993-94.
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For the coming crop year, the Canadian Wheat Board thinks there is potential for 400,000 to 500,000 tonnes of exports to the U.S., about the same as this year but much more than in any other year since 2001-02.
U.S. feed barley prices do not appear to have reacted to the recent corn rally, but if they do, there will be a lot of pressure on the CWB, assuming it maintains its export monopoly, to increase U.S. sales and match U.S. prices.
As for the import situation, Canadian imports of U.S. corn might fall. Agriculture Canada estimated this country brought in 2.5 million tonnes of U.S. corn this year and forecasts an additional 2.5 million tonnes next year. It does not break down how much of that went to livestock feeders and how much to ethanol plants. If barley does not soar with corn, it might displace some imported product and take a larger percentage of the domestic feed market, although the overall pie is shrinking because of herd liquidation.
Adrian Ewins reports this week on the Saudi Arabian barley demand outlook, which is expected to be filled by the European Union and Black Sea region.
The other big barley competitor is Australia. The Australian Bureau of Agricultural and Resource Economics was expected to release its first crop report of the season June 17, the day after The Western Producer deadline.
Private Australian crop forecasters are backing down a little from bumper crop forecasts made early this year. Rain coverage has been spotty this season, but so far the country expects it will still produce a much larger crop than last year when drought devastated yields.
Getting back to the U.S. situation, signs of soaring corn prices cutting into demand are emerging. Five small- to mid-sized ethanol plants in the Midwest were reported closed as of June 16 and another three were not buying corn.
VeraSun Energy Corp. delayed the opening of two new Midwest ethanol distilleries, together slated to produce 833 million litres a year, until market conditions improve.
U.S. ethanol plants have also been hurt by rising natural gas prices, which have jumped by 66 percent since January and are approaching the record set in the wake of Hurricane Katrina.
Reuters reported that a Citi Investment Research note said as much as 7.5 to 19 billion litres of ethanol “could go off-line in the next few months due to high corn prices.” U.S. ethanol production capacity is about 33 billion litres per year from 154 distilleries.
