Export demand for feed barley is causing a stir in some markets on the Prairies.
Last week, the Canadian Wheat Board announced incentives for farmers who sign up barley before Sept. 30.
The incentives have some market analysts predicting domestic markets will have to perk up their bids to ensure they have enough supplies this fall.
For several years, the wheat board has been the market of last resort for feed barley because of low export values depressed by ample world supplies and European export subsidies.
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Most farmers could find more attractive barley bids from western Canadian feedlots and feed mills as livestock production expanded.
But recently, the weather misfortunes of barley growers on the other side of the world have created some opportunities for Canadian barley growers.
“Right now, North Africa and the Middle East have had drought conditions,” said Justin Kohlman, a spokesperson for the wheat board.
European farmers have also had dismal weather, and the European Union may hold back supplies from export.
“If we’ve got the barley, then we can meet the demand,” said Kohlman.
The wheat board thinks it will ship more than one million tonnes of feed barley this year, up from 625,000 tonnes in 1999-00, and a mere 131,000 tonnes two years ago.
The wheat board is offering a carrot to farmers who will commit this month to selling their feed barley for export.
It’s a way for the wheat board to determine how many sales it can book forward, and it gives farmers some cash-flow options, noted Kohlman.
Farmers will be guaranteed delivery of their feed barley by Dec. 31.
Two options
Farmers can choose the traditional payment schedule: an initial payment when they deliver and subsequent payments through the life of the revenue-sharing pool.
Or, for a fee, farmers can choose to lock in a minimum price based on the mid-point of the board’s pool return outlook, and receive a big chunk of the locked-in price before Dec. 31.
The mid-point of the PRO for No. 1 Canadian Western barley is $130 per tonne at port.
Farmers who choose this early payment option will receive the initial payment on delivery, minus handling and transportation deductions.
Shortly afterwards, the wheat board will top up the payment to 90 percent of the locked-in price.
The fee for the option was to be announced daily starting Sept. 5. It may fluctuate depending on markets, said Kohlman.
It will account for the wheat board’s risks and administration costs in offering the option.
Producers who lock in the minimum price will still be in the pool, and eligible for future payments if prices increase over the year, noted Kohlman.
Officials may end the program before Sept. 30 if farmers flood the board with offers.
Skeptics
Before the program was announced, some market watchers were skeptical the wheat board would be able to get commitments to make one million tonnes of sales.
But market analyst Jerry Klassen predicted the offer will appeal to many barley growers, enabling the board to meet its target.
“You receive more cash sooner and you’re still part of the pool,” said Klassen, of Benson Quinn-Growers Marketing Services in Winnipeg.
“There’s very little risk,” he said. Farmers who lock in a price are saved from downward price risk, but will share in gains through the pooled final price, if the feed barley market takes off .
The mid-point of the pool return outlook is similar to domestic prices at many points on the Prairies, said Klassen.
“The producer receives more of a price that’s reflective of the actual market.”
Farmers close to southern Alberta will likely find domestic prices more attractive, since the region has less barley than usual because of drought, said Klassen.
But domestic feed barley buyers may find they have to hustle to the plate with attractive bids to fill their medium-term needs, he said.
This may add some strength to domestic feed barley prices.
“I think it’s going to make the barley market a little more interesting,” said Klassen.
How the incentive plan works
- The Canadian Wheat Board will offer incentives to farmers willing to commit at least 20 tonnes of feed barley, if they sign up between Sept. 5 and Sept. 30. The time period may be shortened if the wheat board gets a strong response.
- Farmers who have a CWB personal identification number can phone in commitments at 800-275-4292, or after hours, 800-665-8751.
- No PIN number? Fill out a form available at www.cwb.ca, grain elevators, or use the fax-on-demand service at 800-665-8751.
- Farmers who choose the early payment option must lock in a value before their first delivery. Prices and discounts will be announced daily.
- Early payment comes with a cost to account for the time value of money and costs of running the program. This fee may vary from day to day.
- The new pool return outlook at the end of September could change the values farmers can lock in.
