January 1, 2007

 

Demand to boost Canada's feed grain markets in 2007

 

 

Despite early indications of larger-than-expected canola acreage in Western Canada, many analysts see promise for Canadian grains markets, particularly from the feed sector.

 

"I think the feed grain supply situation in Western Canada will shape up to be a very unique and tight scenario," Mike Jubinville, an analyst with the farmer advisory service ProFarmer Canada said. "The feed supply situation will probably be the most unique I can think of in history."

 

He said heading into next spring, the inventories of feed grains will be extremely tight, but what will make it more interesting is the fact that there also will be a real demand pull on those limited stocks.

 

"The demand pull I'm talking about will come from the new element on the scene, and that is biofuels, specifically ethanol" Jubinville said. "Demand for feeds to make ethanol will add to the traditional levels of demand that normally comes from the feed sectors."

 

He said the end result of this new demand pull will be even tighter inventories of feed grains in the upcoming marketing year throughout North America.

 

Strong US corn values are expected to result in increased seeded area in 2007, said Glen Lennox, a wheat analyst with the Market Analysis Division of Agriculture and Agri-Food Canada.

 

"However, even though there has been a huge increase forecast for US corn area next spring, the US is still going to need an above-average yield with that acreage jump in order to keep up to the demand that will come from both the US ethanol sector and the US feed and food sectors," Lennox said.

 

US corn prices are expected to remain strong as a result, and will in all likelihood grow stronger, Lennox said.

 

"That in turn will bode well for increased feed grain production in Canada," he said.

 

There will absolutely be "no wiggle room" for any sort of production problems, particularly for US corn, and that should be enough of an incentive to boost acreage to feed grains in Canada next spring, Jubinville said.

 

The incentives will apply to both barley and wheat in Western Canada but will likely favour barley more than wheat.

 

"Wheat has been a market which has rallied for different reasons in 2006," Jubinville said. Production shortages in Australia and other key wheat producing countries was the main catalyst for wheat prices moving up.

 

"There is no real story behind wheat as there has been for feed grains in general," Jubinville said.

 

As a result, producers in Canada will be looking hard at whether to grow milling quality wheats or move to varieties that supply the feed sector," he said.

 

Lennox said feed wheat will likely be worth more than milling wheat by next spring.

 

"The question will be by how much," he said.

 

Low quality feed wheat in Canada will need to be at least close to the value of US corn, Lennox said, noting that it is almost a given that wheat prices are going to be supported by the US corn price.

 

While producers in Canada generally do not necessarily grow feed quality grains on purpose, an estimated 80 percent of the barley crop in Canada does end up in the feed barley market, Jubinville said.

 

"I think 2007, however, will be the year to specifically grow feed barley varieties," he said, adding that producers should push yields if they can.