World barley prices 'to soften' - but oats could 'rally' yet

19.06.2017

Barley prices appear poised to lose some of their vim, but for oats, there is potential yet for a further "rally" before harvest pressure on values begins to tell, Canada's farm ministry said.

Global barley prices "continue to hold their premium" to corn, a major rival among feed grains, "since moving higher at the beginning of March", the ministry, AAFC, said.

In Canada itself, feed barley had touched Can$185 a tonne at one point, up $25 a tonne since the end of April and trading on a par with feed wheat, said the ministry, attributing the strength in values in part to strength in livestock prices, which can exert a pull on values of feed ingredients.

Furthermore, there was a "slowdown in producer deliveries as spring seeding ramped up", with the majority of Canadian crops spring planted.

And a hangover from a wet harvest period last year had an impact too, with AAFC noting "lots of vomitoxin wheats" – that is, wheat contaminated with toxic fungal residues, encouraged by damp late-season conditions, and which can require blending with clean grain to make it suitable even for livestock feed.

The wet nature of the 2016 harvest period was reflected in an estimated 2.3m acres of last year's crop left standing as of the end of year, for harvest in spring this year, or ploughing in.

'Prices should soften'

However, AAFC coarse grains analyst John Pauch raised questions of whether the strength in barley values could last, saying that global prices "should soften as the northern hemisphere winter barley crops harvest is just around the corner, and the new crop supply becomes available".

Barley, with a relatively short growing period, is typically one of the earliest grains reaped in summer harvests.

That said, AAFC, forecasting 2017-18 barley prices averaging Can$160-190 a tonne in Canada, compared with the Can$160-170 a tonne expected for this season, forecast that domestic barley prices would "increase slightly" next season.

Values would be supported by "tighter total barley supplies", with a market consensus of a smaller world harvest in 2017-18, and "decline in the stocks of competing off-grade and other feed grains".

'Start of a price rally'

By contrast, AAFC forecast that a rise in oat prices - which on Chicago's futures exchange stand close to two-year highs, boosted by the same dryness worries which have sent spring wheat values soaring – may have legs yet.

"Long-term seasonality would suggest the start of a price rally as end-users lock-up US new crop supplies," AAFC said.

The US is a structural importer of oats, mainly from Canada.

"Prices would then fall back when the oat harvest in Western Canada begins during the last half of July."

AAFC nudged higher to Can$200-210 a tonne, from Can$190-210 a tonne its estimate for domestic oat prices this season, and to Can$200-230 a tonne, from Can$190-220 a tonne, its forecast for 2017-18.


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