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Malt premium shrinks as feed prices increase

Maltsters have good supply | Future malting prices depend on crops in Australia and Argentina

Barley growers are not pleased with the spread between malt and feed prices.

“That has probably been one of the most frustrating parts for my clients,” said Ron Frost, marketing consultant for Frost Forecast Consulting in Calgary.

“I’ve had a number of producers saying, ‘Look, for a 10 or 25 cent (per bushel) premium to feed I’ve got no interest growing malt this spring.’”

There are a number of reasons why the spread is so narrow.

Maltsters ran highly successful contracting programs in the fall of 2011 and the spring of 2012 in Western Canada and the northern tier of the United States, so they have ample supply lined up.

Argentina’s wheat export restrictions pushed growers away from wheat and into barley production. A rumour that the tariffs will be expanded to include barley is prompting Argentine exporters to aggressively move malt and feed barley into the international market.

A similar situation is unfolding in the Black Sea region where exporters are aggressively marketing all grains for fear of looming export restrictions.

The other big factor behind the poor spread is the U.S. corn shortfall that has driven up feed prices.

Feed barley is selling between $5 and $5.50 a bushel in Alberta. Malt barley values vary, but the most common quotes are in the $5.25 to $5.65 range. Some maltsters got creative and linked barley to the November canola futures values, allowing some growers to lock in a value of $6.25.

Frost said feed barley could easily be fetching $6 per bu. in southern Alberta throughout the winter, considering that cash corn will likely be trading in the $7.50 to $8.50 range.

He believes feed barley will be a bargain relative to corn at those values so demand should be good despite the downsizing of poultry flocks and livestock herds that is already taking place due to soaring feed costs.

Malting barley demand will largely depend on how crops in the southern hemisphere turn out. A slowly building El Nino is generating concern about crops in Australia. Western Australian crops are in trouble if they don’t get rain in September. El Nino years tend to be dry in Australia.

There has been lots of damage to barley crops in the Black Sea region and the European Union may be short on supply due to production problems in Spain and a quality issue with France’s barley crop, which received too much rain.

Frost said the western Canadian crop has been downgraded from bumper territory to average by a combination of disease, hail and heat.

Statistics Canada forecasts 9.5 million tonnes of production, up from 7.7 million tonnes last year and 7.6 million tonnes the year before that.

Crop quality looks adequate so far.

“There doesn’t appear like there’s going to be any issues with getting ample malt quality this year,” he said.

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