While the rally in canola has stalled somewhat, there are some better longer-term signs emerging for world grains markets on the prospects for significantly lower Canadian production.
Already there was some expectation that barley and wheat would ease this year as lower plantings and a return to average yields would see production levels decrease from the peak levels of the past couple of years.
This combined with the Canadian situation will see some grain take a bite out of heavy stocks levels this year. This will be particularly the case for grains where Canadian production is predominant: durum wheat, higher protein spring wheat, barley, canola and pulses.
The barley situation bears watching as we continue to hear reports of crop problems in the EU. On top of this EU feed barley has been the focus of market's attention of late with reports that China purchased up to four Panamax vessels of EU feed barley.
With the Euro easing and a lower import tax on barley than corn in China, EU barley is now competitively priced against imported corn by around US$20/t on a CIF basis.
The high cost of domestic corn is also a factor that has made feed barley imports attractive to feed compounders. The EU is in a strong position to meet demand for shipments this year as Australia is almost sold out of old crop and in view of the crop situation, Canada is out of the market. Black Sea exports are banned from China, due to strict import protocols.
The elephant in the room that is anchoring coarse grain prices at the moment is an expected record large US corn crop. However, if something goes wrong with this crop, there could be a scramble on to secure future supplies. In light of this, the risk/reward matrix dictates that we continue to hold on forward selling barley.