The current domestic feed barley market is providing a good lesson in how important basis is to marketing decisions.
Western barley futures prices in Winnipeg are at contract highs, with November trading at about $160 per tonne – nearly $3.50 per bushel.
“That’s a hellish good price,” said Charlie Pearson, analyst with United Grain Growers in Winnipeg. Western barley futures were about $115 per tonne last year and $80 a tonne in 1993.
But, and this is a big but, the cash basis for barley is also historically high: about $10-$12 per tonne in southern Alberta and wider yet in central Saskatchewan at about $30 per tonne.
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“These are the highest basis levels I’ve ever seen,” said Errol Anderson of Palliser Commodities in Calgary. He said they’re a reflection of the soft local demand in the Alberta feed barley market.
Soft? Anderson said some local feedlots have booked their barley needs all the way out until next summer. In other words, they’re done buying for now.
Greg Lore of Ag Value Brokers in Calgary, a company that matches buyers and sellers of cash grains, made the same observation.
If feed barley buyers didn’t secure their fall supplies this summer, then he said they’re happy to live with hand-to-mouth buying for the time being.
And Lore said the high price of barley means some lots won’t be filling up this fall.
Another factor is bullish farmers who are reluctant to sell just yet. Allan Johnston, a grain broker in Welwyn, Sask., said his clients are aiming for a net price of $3 a bushel.
Since the wide basis is saying don’t sell the cash (at least right now), here are some other ways to consider selling feed barley:
- Pearson suggests hedging by selling a February western barley futures contract.
- Anderson suggests buying a Dec. 1996 corn call. This strategy gives the farmer a 13-month window on what will likely be a volatile world coarse grain market.
- He also said farmers could sell the nearby western barley futures contract and stand on delivery, likely shaving about $14 a tonne (30 cents a bushel) off the current basis.
- Anderson hasn’t ruled out delivering feed barley to the Canadian Wheat Board. He thinks the board is a viable alternative, especially if domestic demand remains soft.
Pearson disagrees. He thinks the board’s price isn’t competitive because of higher deductions this year, even with the latest pool return outlook of $152-162 per tonne.
