New Crop Feed Barley

[wade]

Charlie- What are your thoughts on mew crop fd. bly. pricing? Oct. '08 futures @ $195. I'm in S.AB.

[charliep]

Assuming a $20/tonne over basis, you fall 2008 price would be about $4.70/bu. This would have my attention given I can't ever remember a time that new crop started this high.

To me relates more to what factors will influence/strategy.

US will be interesting again. The US demonstrated they can grow more than enough corn to meet their needs (including ethanol) this past year. Next year, soybean will compete more for acres. Weather/yield is an uncertainty. $90/barrel plus oil will keep attention on developing US biofuels capacity. At some point over the winter, you may have to be prepared to buy some out of the money call as protection against a big increase in corn prices.

My suspicion is that feed barley premium over corn cannot last into 2008/09. Current Saudi feed barley prices will get Europe's (east and west) attention. Acres will respond.

As others have highlighted, livestock numbers (breeding stock) are going to drop over the coming winter. What animals are here will move south to be fed out in many cases. Mandatory country of origin labeling is here next fall with uncertain impact. Your customer which represents 80 % of your market is in tough times which are likely to continue for a year or two years.

The final factor you have to think about is the loonie. Locking in now to a large extent locks in $1.05 loonie.

[poorboy]

I would have trouble finding a 20 over basis for new crop. Currently being offered basis amounts of 0 to 12 under for on farm pickup and I am about $14 truck freight from Lethbridge. I can't find an end user that wants to commit to a fall price for me.

I am still waiting for my Sept 07 on farm barley to be shipped. May not be a feedlot industry here if feed grains stay higher than corn. Makes no sense to ship corn up and then cattle down to the states. Logically the cattle moving as small calves stateside would save in freight.

[IAMTHEMOLE]

Let use Dec 08 corn futures as a proxy. $4.15/bu US add basis of 1.00/bu delivered to southern Alberta feedlot. Currency factor of 1.06, translates into 191/mt for corn. Not really sure on basis but it is probably close. I don't really see any livestock feeder with what we know today being too aggressive booking corn or barley for new crop at those levels. Levels for a feeder to step out would be alot closer to 150/mt. This is close to what an American would pay for feed. CP what do you think?

[charliep]

Agree with the wide bid offer spread and the comment on basis being too generous (my basis is delivered feed Lethbridge by the way).

Off topic but has anyone looked at delivering against the western barley futures contract? Has anyone thought about the CWB gotting short western barley futures and stood for delivery? Taking delivery at $180 to $190/tonne track Saskatoon area and selling into the export market at $300 plus loaded boat Vancouver (has been USD $350).

Any thoughts on how you get the livestock and barley growers to use the marketing tools that are available. Noting the comment on where livestock feeders would start booking new crop ($150/tonne), how many livestock producers used the forward pricing tools from this past spring to manage their feed price exposure? If I remember right, they used a lot of the same arguements then.

[charliep]

Got my shorts and longs wrong (maybe my shorts were in a knot). Meant to say:

Has anyone thought about the CWB gotting LONG western barley futures and STANDING for delivery? Taking delivery at $180 to $190/tonne track Saskatoon area and selling into the export market at $300 plus loaded boat Vancouver (has been USD $350).

[IAMTHEMOLE]

We would love to be able to have the ability to deliver against barley futures. There has been serious disconnect between cash and futures at times. But you still have to deal with a grain merchant at the end of the day. If you have good on farm storage with good load out and you are willing to post the margin to be short(125%)so you can deliver, why should we not be allowed. Any quality differences are penalized.

[charliep]

To bring wade back into the conversation. Under following assumptions for what the futures market appears to be offering today, what major acreage shifts are likely to occur this spring (assuming the seeding decision was made today).

Canola - $9.75/bu ($20 under Nov 2008).

Barley - $4/bu ($10 under Oct. 2008)

Wheat - $5.25/bu (fpc basis $10 over Dec 2008 MGE converted).

[Ron]

If I could lock in $4 barley for new crop I would maximize barley acres vs.canola, straighten out my rotation and it is cheaper/easier to grow 100 bu barley than 50 bu canola. Dont know about growing more wheat as the CWB pisses me off on a regular basis. If the gross/acre is the same as wheat I will grow barley to avoid delivery/acceptance issues with the CWB

Screw the CWB

[wade]

Don't know if I still can this year, but sold bly. last year for $10-$12 over for forward months. Deducting my freight cost( approx. $8), I could lock in an excellent profit compared to previous years. Was trying to quiz Charlie on what his crystal ball said for fd.bly. prices. With calves going south and what cattle are here are getting alot of corn, I am concerned. That leaves a guy looking for an open border or oversea sales.
At your prices mentioned, fd. bly. is so much easier to grow here that it is a no brainer.
For '08 have contracted approx. 10% acres canola already,am thinking of another 15%, have 15% fall wheat, don't plan on any spring wheat, the rest fd. bly. but plans do change!

[IAMTHEMOLE]

I think farmers should sell the s#$T out of Oct 08 barley. Our dollar is 1.07 today. You will need a hedge account to do so as I do not foresee many forward contracts out there. Remember Oct 08 barley price of 191/mt represents barley in Saskatoon. Do not miss this one!!

[charliep]

Agree with selling with caveat you need to hedge using futures and be prepared to top up your margin account if prices go higher. Not forecasting the future at this point but rather looking at $4/bu plus feed barley relative to history, profitability, cash flow next fall, etc.

I also asked the question on acres because I suspect feed barley acres will increase next year in Alberta. Clubroot in canola. $5 to $5.50/bu CWRS (other classes closer to $5). Also cannot guarantee the pricing opportunities will be there in world markets. Finally, the size of the cattle herd and pig numbers will decline. All point to lower prices but mother nature will be the driver given tight world carryovers.

[TOM4CWB]

Charlie,

I see on wheat the 31 of Oct/07 the CWB has the basis@ $12.89 Dec and $14.81 under on March 08.

What tells you the CWB will be at $10 over in 08?

What is this deduction, it can't be a basis driven by market values at port position... It looks like another adjustment factor to assure the poolers, that flat pricers learn a lesson!

I learnt a lesson... doing a futures only and expecting a market driven fair basis from the CWB is totally unrealistic. Until there is major management revolution at 423 Main.... FPC and PPO contracts are taxes to milk flat worlders!

[charliep]

Just a WAG (Wild A***d Guess) based on where the CWB has set basis in the past. I use the $240 converted MGE plus $10 minus $50 for CWB deductions for a local price of $200/tonne (about $5.45/bu). Don't have any idea as to where the CWB will other than history.