Malting barley supply balloons

Quantity 150-200 percent of normal | Premium over feed to erode as year-end stocks grow

Canada is overflowing with malting barley and some of it is going to remain in bins longer than farmers had hoped, say industry officials.

Agriculture Canada estimates growers produced 1.5 to two times more malting barley than normal this year.

Dale Matchett, a malt barley merchant with Richardson International, doesn’t think it was double the normal amount but it could easily be 1.5 times the usual.

That is going to be a problem because barley exports have been extremely slow. Shipments were 38 percent below last year’s pace through Week 16 of the 2013-14 crop year, despite having an additional one million tonnes of barley supply.

“I think we’ll struggle to hit the targets on exports,” he said.

“We need to pick up the pace for the rest of the year.”

Agriculture Canada sees 2.3 million tonnes of exports. Matchett believes it will be closer to two million tonnes, which means carryout will likely be higher than the 1.5 million tonnes Agriculture Canada is forecasting.

“I think we’re going to be close to a two million tonne carryout,” said Matchett.

It doesn’t bode well for the $1 per bushel premium malting barley has over feed barley prices.

“The premium for malting has held up surprisingly well,” he said.

However, he expects the premium will come under pressure in coming months as growers realize how much malting barley is in the system. He advised signing target price contracts and shopping samples around.

Phil de Kemp, president of the Malting Industry Association of Canada, said Canadian maltsters usually buy one million tonnes of malting barley a year and grain companies another 1.2 million for export.

That’s a total demand of 2.2 million tonnes, but farmers likely grew 3.3 to 4.4 million tonnes of malting quality barley.

“Because of the premiums for malting barley, you wish you could find a home for all of it, and unfortunately with the size of that quality crop, you’re not going to be able to find a home for all of that,” he said.

Bob Sutton, commercial vice-president of Rahr Malting Co. in Alix, Alta., said the crop has good size and germination and low protein, which is exactly what maltsters want.

The Canadian Grain Commission said the average protein level is 11.1 percent this year, well below the 10-year average of 11.7 percent.

Sutton said it is the best crop he’s seen in all his years in the industry.

“And I’m an old grey hair. I thought the 2011 (crop) was the best one I’d ever seen. This one is actually producing better malt results.”

He expects to be buying it on the spot market well into next fall.

“We can’t go too long on it because we want to maintain our relationship with our growers and make sure if they want to grow barley in the 2014 crop that we have contracts available,” said Sutton.

“But we will be taking some of the overages and having a bit of a longer position than we normally would given that the quality is so good.”

Kevin Sich, manager of Rahr’s grain department, said malting barley cash bids have fallen to about $4.50 per bu. from $6 six months ago.

“That’s how much the market has come down just following the good old corn market and the big supply of barley out there,” he said.

New crop bids aren’t much better.

“It’s spot price plus carry. There might be an extra $10 (per tonne),” said Sich.

He agreed with Matchett that carryout could climb as high as two million tonnes, depending on exports.

Given the huge supply and the grim export outlook, growers might want to consider carrying over the crop for a year at $4.50 a bu. rather than selling it into feed markets for $3.50 a bu.

“A buck a bushel is pretty good in-terest on your money,” said Sich.

The crop was dry, so it should store well as long as it is kept cool.

“If you can preserve germination, you can hold that barley for a couple of years,” he said, adding fierce competition for rail cars and terminal space helped slow exports.

“Barley sometimes gets the raw end of the (deal) on that. There’s not usually a real aggressive book on barley ships early in the year.”

Mounting international competition is also an issue, said de Kemp.

“There’s a new player in town now, and that’s Argentina,” he said. “They have come on like gangbusters.”

A country that annually grew less than one million tonnes of barley before 2006 is estimated to have produced 4.3 million tonnes this year. Argentina is expected to export 2.6 million tonnes of that, more than 10 times the amount shipped a decade ago.

“The export side of things is getting quite competitive, certainly with Argentina now into the market,” he said.

The U.S. Department of Agriculture expects Australia to export 4.1 million tonnes of barley this year, up from 3.8 million tonnes last year because of a larger crop.

The European Union is expected to ship six million tonnes, which is 1.5 million tonnes more than the previous five-year average.

The United States produced a crop about the same size as last year, but the quality was particularly good and that limits its interest in Canadian barley.

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