Are you panicking about the barley price going down? The crop is proving bigger than most expected and the market is feeling the pressure with an abundance of cash sellers. But does the price need to fall much further?
Here is some information to help with your marketing decisions.
Three nights ago, Saudi Arabia purchased 1 million tonnes of feed barley in a tender, at values $5-$15 below Aussie replacement. Several trading houses shorted this tender in anticipation of global farmer selling pressure. Australia doesn’t need this business as we have a hungry domestic market and good demand from Thailand, Japan, Kuwait and most likely China. But if we didn’t have all of these things, it’s comforting to know that a $5-$15 drop would make us the worlds cheapest barley in a historically tight domestic year.
Despite the recent extension of the antidumping investigation, we understand that some Barley boats are still scheduled to load in December destined for China. Last year we saw more than 1mmt head into China post February. So, in a way the extension of the investigation means nothing. It would have been worse if the extension was halted and a tariff was imposed. China have averaged 2mmt of Australian barley imports annually over the last 20 years and we are of the opinion that this pace could continue.
You all would have noticed the absence of a malt spread over feed, this is due to a combination of two factors. As our export malt only really goes to China, no one is willing to pay a premium for it due to what we consider to be the inaccurate idea that China will not buy Australian barley. The second factor is that local malt houses are having trouble getting sales of processed malt for export away. These guys cannot sell the processed product at the moment, which is contributing to the erosion of the premium. But that’s not to say we won’t see a premium. To us, selling malt at feed values at this time of the year is not the right approach, as there’s plenty that can unfold.
Domestic Barley doesn’t need to do anymore work to buy as much local demand as possible. Its discount to wheat and other products is encouraging full utilization. Interestingly the wheat crop is not surprising as the barley crop is from a yield perspective, with inelastic demand for wheat likely to reduce carryout’s further than last year. Another factor here is that the quality profile of the crop is high protein, which means that the general base price shifts higher with all grades contracting. This opens up the likelihood of us as a country over exporting wheat and using residual barley as a domestic fallback plan.
Let’s not forget how much the domestic market needs feed grains. Our sorghum crop is scheduled to be well below average. The first sowing window for the Australian sorghum crop has closed with very little sorghum sown. Considerable soil moisture deficits in southern Queensland and northern NSW are limiting the size of the Sorghum plant, with farmers very cautious to plant after several failed crops in a row. Any shortfall in feed Sorghum production will most likely be substituted into domestic feed rations by feed barley.
So in summary, the big picture for barley is that our crop is big yes. But we are not expensive locally or globally in a year when Australia is looking at a total grain deficit.
We see barley as a product with a lot of fundamental support over the next 10 months and see it as a great opportunity to outperform the harvest price post-harvest.
Flexi Grain is now receiving tonnes for their ten month pool, FlexiTen. FlexiTen gives you access to a harvest advance or payment deferral, whilst having your grain managed by an independent business that is solely focused on managing risk and adding value to your grain asset.
Article provided by Flexigrain
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