Prices down | World acres are up and several European countries had excellent harvests
Malting barley prices are flagging as European growers appear poised to harvest a better than expected crop and North American farmers plan to plant a lot of barley.
“We certainly have seen new crop bids slide on the Prairies to the point where maybe even some companies aren’t offering new crop bids or maybe they’re offering production contracts but not necessarily the pricing with it,” said FarmLink market analyst Jonathon Driedger.
The International Grains Council estimates that world barley plantings will rise eight percent this year as fall seeded crops that were lost to cold snaps in Europe and the former Soviet Union are replaced with spring barley.
Europe’s winter barley crops were saved by timely April rain, which reduced protein levels and increased the chance of the crop making the malt designation. Britain had the wettest April on record in 100 years. Spring barley is also benefiting from the rain.
A story in Britain’s Telegraph newspaper says that while growers in Spain had a poor year because of dry conditions, farmers in Germany, France, Italy, Denmark and Britain “have all reported excellent conditions for record harvests.”
Malting barley prices in Europe have plunged $90 per tonne since early February, with the biggest drop occurring in the last half of April.
The price outlook for the crop hasn’t been helped by grower intentions to plant 3.33 million acres of barley in the United States, up 30 percent over 2011 levels, and 7.97 million acres in Canada, up 23 percent.
“There’s just simply a bigger pool of barley to select from,” said Driedger.
The pool may get even bigger as growers in southeastern Saskatchewan, who are facing excessively wet conditions, consider switching from canola and wheat to shorter season crops such as barley and oats be-cause of seeding delays.
Ample supplies of old-crop malting barley in Canada, Australia and Argentina are further pressuring international prices.
Driedger said today’s new crop malting barley bids are less than $5 per bushel compared to initial winter contracts that were closer to $6.
In the meantime, new crop feed barley contracts have remained firm because of tight old crop corn and feed barley supplies.
“It has certainly narrowed that spread between feed and the malt barley for new crop over the last couple of months,” he said.
In the past, it was common for growers in premium feed barley markets such as southern Alberta and southeastern Manitoba to sell their malting barley into the feed market if the spread was close because they could move their grain and be paid for it immediately instead of waiting for their CWB cheques.
However, Driedger doesn’t expect that to happen because malting barley prices under the open market will likely be more responsive to market moves than they were under the CWB pools.
Another dynamic under the open market will be the move to a third classification beneath what was previously considered malting barley. This lower quality classification may have some appeal in a market such as China.
FarmLink is advising its clients to forward contract some of their barley production as long as they can lock it in at a good profit because the outlook for prices is flat to somewhat bearish.
“We don’t necessarily see a great deal of upside in malt barley prices unless we get some weather and quality issues,” said Driedger.
However, he warned growers to be cautious about contract terms.
“If you don’t get malt quality, is there a buyout cost or can you deliver feed or is there an Act of God clause?”