Australia: Over-supply of malting barley pressures premiums in the long-term

From a bulk exporters perspective, there's a huge over-supply of malting barley in Australia which makes it nearly impossible to sustain any major premiums on the commodity in the long-term, the Farm Weekly reported on August 4.

That was according to CBH Group barley trading manager Drew Robertson who spoke on the topic at the Grain Industry Association of Western Australia's (GIWA) Barley Forum, held at Crown Perth last week.

Barley production in Australia has peaked, with Western Australia last year witnessing a 15 per cent reduction in barley hectares and GIWA predicting a further 5pc drop on that this year.

While there is an indication that growers have moved away from barley, mainly as a result of the Chinese barely tariffs, favourable conditions have still led to plenty of malt being added to the market.

For 2020/21 Australia had a malting barley supply of 3.1 million tonnes.

The domestic demand was roughly 1.1mt and according to the Australian Bureau of Statistics, about 334,000 tonnes were exported from October to May, which left a surplus of more than 1.6 mln tonnes of malting barley.

"There is a significant over-supply of malting barley which leaves a really limited opportunity for premiums outside of domestic demand regions and preferred varieties and that is going to be ongoing for the foreseeable future," Mr Robertson said.

"We have had some new malt markets in Mexico, Peru and Ecuador, but none of those markets are able to compensate for the loss of the Chinese malting market."

CBH is currently estimating just below 12 mln tonnes of national barley production this year, 5 mln tonnes of which is expected to come from WA.

That 12 mln tonnes estimate is a 10pc drop year-on-year from last year where just over 13 mln tonnes was produced in Australia, mainly due to exceptional growing conditions in New South Wales, Victoria and South Australia.

Mr Robertson said people thought "the world was going to end" once Australia wasn't able to access China anymore, but instead there has been a significant shift in trade flow.

"We've exported 5.7 mln tonnes of malted and feed barley through to May 31 and the main destination this year has been Saudi Arabia, while Thailand has become our second biggest market," he said.

"Last year we exported about 750,000 tonnes to Thailand, this year that's been just under 1 mln tonnes, so that's been a really good market for Australian barley over the last 12 months.

"Vietnam has seen a lot of end users substitute corn for barley, so feed barley there has increased quite significantly, and it's a similar story in the Philippines."

In regards to global barley supply and demand, Canada was predicting an 11.3 mln tonnes barley crop due to increased hectares planted as they were getting access to the Chinese premium.

However, Canada experienced a horrible July that was hot and dry and that number has decreased down to about 9.5 mln tonnes estimate and it will probably drop below 9mt as the crop has been damaged severely.

Meanwhile Ukraine is predicting 9.2 mln tonnes, however some estimates are more than 10 mln tonnes.

"A big factor going forward is whether China is going to continue as a major buyer of feed barley in 2022," Mr Robertson said.

"If they are, you would expect a lot of the exportable surplus out of Ukraine would be directed straight to China.

"However if China dial back their procurement of feed substitutes, then there is going to be quite a significant volume of exportable barley in the Ukraine that could work into the Middle East markets which are critical for us in Australia."

However malt is a different story with China requiring around 4mt of malting barley from the world.

"If Canada is going backwards production and quality wise, then France and the European Union will be increasingly important," Mr Robertson said.

"However if the floods and rain damage seen over the last month in Europe have caused quality issues, then there remains a big question over where China will source that malting barley from."

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