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Malting barley – a bleak outlook in 2009

Story Added : 08th May 2009

It is a traditionally quiet time of year in terms of barley trade with consumers covered until Northern Hemisphere new crop. Underlying support for new crop values is coming from firmness in world wheat and oilseed values. Malting barley prices have stabilised somewhat following a significant fall in 2008 – off all time highs.

The above chart shows these stabilising prices and the premium of malt over feed which has returned to more conventional levels after a blow out in 2007 and 2008.

World malting barley supply IGC expect world barley production to decline 10mmt in 2009/10 to 145.9mmt although much of this decline is pegged for Ukraine and Russia who grow feed varieties.

Still, EU barley area is expected to be down 2.8% (IGC) with mostly a reduction of spring (hence malting varieties) plantings. Coceral estimate EU spring barley plantings down 4.8% and with a return to more normal yields a reasonable drop in availability is expected.

Heading west, Canada will have a slightly bigger area but a return to more normal yields suggests lower availability for the coming season. And in Australia, there is the potential to grow a bigger crop, although weather will play a big hand in malt availability.

In summary we expect malting barley availability to be slightly less than in 2008, however, carryover old crop stocks will help soften the impact.

World demand for malting barley will be much more difficult to gauge due to the global economic situation. There is talk of beer consumption falling in some regions (i.e., Russia) as well as brewers changing to lower grade raw materials to lower costs – and or lowering the malt content in beer.

Brewers are reported to be more cautious with their purchases although there is no clear evidence yet of the recession affecting world beer consumption. While malting barley use in some regions might stagnate, imports into China (a nearby market) should continue to grow, partly due to natural growth and partly due to an expected lower Chinese crop.

In the past few years the world malting barley trade (excluding malt) has stagnated at around 3.7mmt. There are currently no estimates for 2009/10 but we suspect it will remain stable.

In terms of world trade in barley malt (barley that is malted domestically for export) the IGC have this sector growing at just under 1% and we suspect that in 2009/10 this level will stagnate. The chart below displays the major exporters of barley malt.

The price outlook for 2009
Internationally, much will depend on the eventual malt/feed split around the world and the impact of the world economic recession on demand.
There is currently a lot of uncertainty with supply and also beer consumption which will have malsters shying away from taking too much forward coverage. A clearer indication of supply in the northern hemisphere will not be available until August and then the Australian crop not until December.

Until we know more about supply of new crop malting barley prices will remain elevated (EU malting US$200/t FOB) as growers worldwide are not selling and the trade is not prepared to short the market.

The outlook for Australian malting barley prices will hinge on the outcome of the European crop and of course our own plantings and eventual malting percentage. Currently based on French values of US$200/t FOB, bids in Australia should be close to A$240-250/t Geelong port which is where we are at – while Kwinana is bid $243/t FIS, and Port Adelaide $234/t.
Based on the significant premium of new crop in the EU to old crop (circa US$30-35/t) we expect that international new crop prices will come under pressure and our local values will follow suit.

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