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CASTLE MALTING NEWS in partnership with www.e-malt.com German
24 November, 2020



Malting news Australia: Bumper barley harvest to save United Malt some of past year’s big price and freight cost challenges

The long awaited big cropping season which evaded Mark Palmquist for much of the time he ran eastern Australia's GrainCorp now promises to deliver barley volumes and quantity in spades for his United Malt Group, the North Queensland Register reported on November 24.

Australia's national malt and feed barley harvest is expected to break 12 million tonnes, conveniently saving United Malt some of the big price and freight cost challenges it felt in the past two droughty seasons as eastern states supplies dried up.

The United Malt managing director is also anticipating possible acquisition opportunities on the horizon, triggered by pressures on other malt and brewing industry players bruised by the coronavirus pandemic's business setbacks.

"We're open to seeing what options might be created by the changes experienced this year," said Mr Palmquist, who now runs the Australian-owned United Malt from the company's operations base in the US.

Growing UMG's footprint in markets such as Mexico and Asia are among a variety of potential target areas tentatively on the drawing board.

On the seasonal front this year's Australian barley crop, which includes about 5m tonnes from NSW and Victoria, is tipped to be at least 25 per cent bigger than last year and more than 20pc above the average for the past decade.

"It's really nice to see so much of Australia is finally celebrating a big harvest again," he said.

"We're really pleased for the farmers' sake, and our own business."

Last year United, which owns the Barrett Burston malt houses in three states and similar operations in the US, Canada and Britain, had to pull barley from Western Australia to its plants in Victoria and Queensland.

The previous season the Brisbane site largely relied on supplies from Victoria and South Australia.

Only one recent season - the 2016-17 harvest - proved to be a big one across Victoria, NSW and Queensland in the five years Mr Palmquist was GrainCorp managing director before taking charge of its malt division when UMG spun out as an independent entity in February.

This summer's abundant Australian feed and malt barley volumes are not just good news for domestic malt processors, but will also likely help ease market pressures faced by maltsters in North America.

Soaring US feed corn prices have had a domino effect on the US and Canadian barley market, pushing up demand and prompting more acreage to be planted to feed grain crops.

Ironically, the North American shortage has been partly caused because crippling tariffs on Australia's potential barley exports to Chinese malt and feed barley buyers which ended our export trade and left China relying on the US for much more feed grain than normal.

"We don't think China has had as good a crop as expected and given they can't buy feed barley from Australia they have to replace it with something else, like US corn," Mr Palmquist said.

Recent Australian malt barley exports to China have been as high as 6.5 mln tonnes a year, but traders are now finding some other export advantages as an indirect consequence of the China tariffs.

Meanwhile, despite coronavirus causing significant disruption to global beer markets, United Malt Group's total production and sales output has rebounded to about 90pc of its pre-COVID-19 volumes.

Mr Palmquist reported the company's full year profit after tax was hit hard by pandemic disruption, dropping 31pc to A$60 mln.

However, that result was actually applauded by market analysts who had widely anticipated a lower figure in the A$47 mln to A$53 mln range.

Production problems had been greatest during the UK shutdown, with costs generally higher across the group because of extra shifts associated with working through the coronavirus restrictions.

Earnings had also been impacted by changes in product mix required to meet more off-premises beer consumption.

While "take home" beer sales had surged, extra packaging and distribution requirements, including in the lucrative craft beer marketplace, could not fully compensate for the collapse in bulk demand from bars, restaurants and sporting venues.

Other notable expenses since starting as a stand-alone business were corporate costs and insurance premiums, in particular rapidly rising insurance coverage for property and professional protection for decisions made by board directors and senior company officers.

Although partially offset by cost-saving initiatives worth almost A$6 mln, including freight optimisation strategies, Mr Palmquist said 2019-20 saw a surprising increase in insurance costs, partly attributed to the cost of a big storm damage season across the US.

He said United Malt's split from GrainCorp (which still owns 8.5pc stake of the maltster) would take a while to settle down, but the new company was excited about growth opportunities made possible by the break up.

"We can manage our own cash flow and plan ahead for capital expenditures, including acquisitions," Mr Palmquist said.

"There's nothing on the table, but that could always change.

"After the past year's events we think some companies are going to have to make decisions on parts of their business, or even merging with other parties."

The Asian brewing market, currently serviced by United Malt's Australian and Canadian businesses, was a solid and enticing growth area, as was the specialist beer market in Mexico.

"Mexico is an expanding market with strong population growth, an growing middle class and a nice preference for craft beer," he said.

"We're shipping ingredients into that craft market from the US at a good price, but Mexico's an interesting prospect - it's possible we could find some opportunities down there."

Another promising avenue for United Malt's ingredients warehousing and distribution segment was the fast emerging seltzer drinks market.

The distilled product, which has enjoyed a rapid rise in popularity in the US as a mixer drink, is made using products such as dextrose, maltose, sucrose and flavourings supplied by United Malt.





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