Drought may lift feedgrains

The U.S. Department of Agriculture continues to make downward adjustments to its estimates of South American corn production — a factor that should bode well for feed barley prices in Western Canada.

In a Jan. 12 bulletin, the USDA reduced its estimate for total Brazilian corn production in the 2022-23 marketing year by one million tonnes to 125.0 million tonnes. That’s down from the USDA’s December estimate of 126 milllion tonnes.

The USDA’s corn production estimate for Argentina has also been reduced five percent from last month’s estimate. It now expects 52 million tonnes, down from 54.7 million tonnes a month earlier.

Average corn yields in Brazil and Argentina are expected to be higher than last year, but prospects for this year’s harvest are being pared down as drought conditions in the two countries continue to affect overall yield potential.

According to Argentina’s Bolsa de Cereales Buenos Aires, late-season corn planting is underway in Argentina and will continue over the next few weeks.

As of Jan. 5, approximately 12.6 million acres of late-season corn had been planted in Argentina. Analysts say the percentage of late-planted corn in Argentina will be higher this year than last, continuing a trend that has been underway for some time.

The ratio of late-seeded versus early-seeded corn has been gradually increasing over the last few years.

Under normal conditions, late-planted corn crops usually produce lower yields than the early-planted crops, but drought conditions have prompted growers to delay plantings.

Conditions from October through December of last year have been drier than normal, the USDA added.

For Canadian feed grain producers, this should be supportive of domestic and export prices.

In a barley market outlook presentation at Crop Week in Saskatoon last week, grain and oilseed analyst Chuck Penner said global corn ending stocks are at multi-year lows and global consumption continues to rise.

“There’s no real cushion (in global corn supplies),” said Penner.

“Just like wheat, just like soybeans — corn is the same thing. We basically need to grow record crops every year. That’s the bottom line (because) the usage trend doesn’t fluctuate much.”

In addition to tightening supply and demand fundamentals, corn production in Ukraine is down and production in the European Union was also off by nearly 15 million tonnes this year, Penner said.

“There’s a whole lot riding on what goes on in South America,” Penner said.

In Canada, barley production rebounded in 2022 following a dismal harvest the previous year.

Canada’s average 2022 barley yields are projected at slightly less than 70 bushels per acre, up from approximately 55 bu. a year ago.

That is likely to boost the country’s barley ending stocks at the end of the 2022-23 marketing year (July 31, 2023) to approximately 750,000 tonnes, a level that Penner described as “bigger but not big.”

By Aug. 1, Canadian ending stocks will increase slightly, he said.

But overall, Canadian barley “stocks will be tight again.”

At July 31, 2021, barley ending stocks in Canada had shrunk to an extremely tight 500,000 tonnes, the lowest level Canada has seen in years.

Since then, producers in Canada have benefitted from relatively strong markets, partly because of ongoing tightness in global corn stocks caused by drought and geopolitical issues in other feed grain exporting countries.

By that measure, the outlook for Canadian growers looks good, Penner said.

But much will depend on Chinese demand for feedgrains over the next few months, he added.

And right now, the demand outlook in China “is still a bit iffy.”

Between late 2020 and early 2022, Chinese barley imports spiked, pushing Canadian barley sales to stratospheric levels.

In mid-2021, monthly sales to China hovered around the 400,000 tonne mark. 

Since then, barley prices have risen sharply, and barley discounts compared to other feedgrains such as corn and feed wheat have narrowed.

“It used to be that barley was at a pretty significant discount (to other feedgrains), so that encouraged a whole lot more (barley) demand from Chinese feeders,” Penner said.

“Now, that discount has largely disappeared, so Chinese demand won’t be quite as strong as we saw before.”

To complicate matters further, Australian producers are sitting on huge supplies of low quality feed barley. The potential re-entry of Australian feed barley into Chinese markets could have a significant impact on Canadian feedgrain prices.

In Canada, domestic feed barley prices, though still strong, are off their earlier peaks.

Imported corn is keeping a lid on feed barley prices in Western Canada.

“Last year we saw massive imports of U.S. corn (into Western Canada),” Penner said.

“This year, they’ve picked up again, so that’s what’s keeping a lid (on domestic barley).”

This spring, Canadian growers could conceivably increase their total barley plantings by five to seven percent, Penner said.

However, supplies are still relatively tight, both domestically and globally, and there is little room for weather-related production problems.

If drought conditions persist across key production regions of Western Canada, supply shortages will be reflected in domestic prices.

Domestic maltsters have secured ample supplies of malting barley, Penner said.

Last year’s high-quality crop has resulted in a narrow spread between prices for feed and malting barley, he added.

Access the entire article.