Offshore feed barley prices have strengthened significantly in recent weeks, in large part due to growing conditions in eastern Europe combined with the Russian drought. This special market update is being issued to inform farmers about the CWB’s Guaranteed Price Contracts and the opportunities they represent in the current market environment.
The recent Russian ban on grain exports (including existing sales for shipment after Aug. 15) and expectations of export restrictions from Ukraine have brought the situation to a head. For the past two years, exports from this region have represented over 60 per cent of the 13 to 16 million tonnes of feed barley traded annually around the globe. The potential for a dramatic reduction in feed barley exports from the Black Sea region has sent ripples through the international feed barley trade. Traders with short positions who needed to buy barley or default, as well as feed-barley importing countries, have been seeking to cover their short- and medium-term feed barley supply needs during this time of uncertainty.
As a result of this market rally, export values have become attractive relative to the Canadian domestic market which, for the past few years, has almost always yielded returns well above those available in the offshore market. The CWB has been taking advantage of this opportunity by selling more than 200 000 tonnes of export feed barley in recent weeks. These sales give farmers the opportunity to participate in the offshore market, while putting upward pressure on domestic barley prices, benefitting all barley farmers.
Farmers can access the CWB sales by signing CWB Guaranteed Price Contracts. These are three-way contracts between the CWB, grain companies and farmers. The CWB issues feed barley tenders to the grain trade when there are opportunities to make international feed barley sales at good prices. Companies bid against these tenders and the winning grain companies work with farmers to secure the necessary tonnage. Farmers, in turn, accept a CWB-guaranteed in-store price and a defined delivery period. Farmers negotiate the basis (freight, handling, trucking premiums, etc.) with grain companies on an individual basis. Grain companies commit to supply the CWB with the agreed-upon volume. The most recent Guaranteed Price Contract had a guaranteed price of $215 CDN in-store Vancouver.
The feed barley Guaranteed Price Contract is a cash program that allows the CWB to offer farmers prices that are competitive with or higher than the domestic feed barley market. In addition to providing farmers with immediate cash flow, the Guaranteed Price Contract also gives farmers an opportunity to take advantage of higher prices when there is a run-up in international values.
International feed barley prices, which are always time and location specific, are established on a sale-by-sale basis, based upon negotiations between the buyer and seller. With recent market volatility, the CWB has seen the market move as much as $30 US per tonne (65 cents per bushel) in one day. As a result, the prices offered to farmers under Guaranteed Price Contracts have been continually increasing as new tenders have been awarded.
This extreme volatility has meant that in some cases the CWB has executed recent sales at values considerably higher than anticipated at the time of tender. As a result, the CWB may have surplus earnings to distribute to farmers who participate in the 2010-11 Guaranteed Price Contract for feed barley. If so, these flat, per-tonne payments will be distributed to all farmers participating in the Guaranteed Price Contract at the end of the marketing year, similar to the surplus payment structure of the CashPlus program for malting barley. However, given the extreme volatility of the feed barley market, a cash surplus is not guaranteed. Just as market upturns can mean additional revenue to the program, sudden market downturns have the potential to draw earnings from the program. Farmers should make decisions about whether or not to participate in Guaranteed Price Contracts based on the guaranteed cash payment offered.
The CWB advises all farmers who may be interested in the cash program to contact their grain company directly to find out if the company is participating in any tenders. Farmers can also call 1-800-275-4292 and the CWB’s Farm Business Team will relay current contract availability.
