When Russia announced a ban on grain exports Aug. 5, wheat got most of the attention. But barley was also included in the ban.
“Wheat grabbed the spotlight but this probably has greater implications for barley,” said Alberta Agriculture market analyst Charlie Pearson.
“The long and short of it is much, much tighter feed barley supplies globally.”
Black Sea grain exporters, Russia, Ukraine and Kazakhstan, last year exported 8.4 million tonnes of feed barley. That represented about half of total world trade of 16.9 million tonnes (roughly 12 million feed, four million malting), with Ukraine exporting six million and Russia 2.1 million, all feed.
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Much of the Black Sea feed barley exported in recent years has gone to Middle East buyers like Saudi Arabia. This year’s Russian crop is expected to total about nine million tonnes, the smallest in 40 years.
The drought and the sales embargo have left buyers and sellers in a quandary.
“It’s very difficult to get a handle on the export barley market at this time,” Wild Oats Grain Market Advisory said
in a recent market report, adding potential exists for Canadian feed barley exports into the Middle East in 2010-11
The situation has supported prices, with European Union feed barley trading at 219 euros on Aug. 9, up from 90 euros in mid-June (one euro equals $1.34 CDN.)
Malting barley rose on the strength of feed barley, with prices quoted at 220 euros for October delivery in northern Germany. At one point, feed barley traded at par with milling wheat, a rare occurrence.
The EU holds 5.5 million tonnes of feed barley in intervention stocks, but reportedly has no plans to sell any before fall at the earliest.
Bob Cuthbert, Canadian Wheat Board barley marketing manager, describes the market as “a very volatile situation.”
“The big question now is will Ukraine restrict its exports too?” he said. “We might even see Ukraine export barley to Russia.”
Cuthbert said there is potential for some Canadian export sales, adding the board recently made three sales of feed barley to the Middle East and Japan.
The CWB expects an eight million tonne barley crop in Canada, the smallest in half a century.
About 2.2 million tonnes will be selected for malting, according Cuthbert, leaving about six million for feed and other uses.
Domestic demand, meanwhile, will be around seven million tonnes, limiting the availability of feed barley for export.
Stocks at the end of 2010-11 could fall to one million tonnes.
Pearson said he hopes the CWB will reflect some of the international market opportunities to farmers who need accurate price signals so they can choose among options for their feed barley, including the open market, selling to export markets through a CWB guaranteed delivery contract or storing it.
Agriculture Canada coarse grains analyst John Pauch doubts Canada will make large exports.
“Canada’s exports of feed barley are expected to be minimal due to strong returns from the domestic market relative to overseas markets,” he said in a recent market outlook report.
Market analyst Greg Kostal said he thinks the board will want to get into the feed barley market in a bigger way, given strong prices.
“The CWB is in the process of tendering for more,” he said, offering guaranteed delivery contracts that bring a farmer about $3 a bushel basis Saskatchewan.
The Russian embargo also includes rye, corn and flour.
World barley production and exports
Production 2010 (2009)
European Union: 54.8 million tonnes (61.3 million)
Russia: 10 million (17.9 million)
Ukraine: 9 million (11.8 million)
Canada: 8.4 million (9.5 million)
World total: 127.9 million (149.3)
Exports (feed barley)
EU: 4.6 million tonnes (2.4 million)
Ukraine: 4.0 million (5.4 million)
Canada: 1.0 million (1.1 million)
Russia: 400,000 tonnes (1.9 million)
World total: 15.9 million (16.5)
Source: USDA Foreign Agricultural Service [
SYDNEY, Australia (Reuters) – Canadian fertilizer maker Agrium Inc. has offered $1.1 billion US for AWB, Australia’s largest wheat exporter, trumping a rival bid from local player GrainCorp as it seeks to expand its Asian retail operations.
Investors said the Agrium offer, a 37 percent premium to AWB’s closing price on Aug. 13, was expected to knock out GrainCorp’s lower all-shares bid made last month.
There was also some speculation other big global players could enter the fray.
AWB lost its monopoly over Australia’s bulk wheat exports two years ago.
The latest offer values AWB at $1.2 billion Aus, according to Reuters calculations, a premium to Grain-Corp’s all-share deal, worth around $921 million Aus based on both companies’ share prices.
Agrium wants to gain control of AWB’s retail division, Landmark Rural Services, which it expects to increase using its international fertilizer and crop protection capabilities.
It was also attracted to AWB because the firm operated in a stable market and could be used as a springboard for expansion in Asia where demand for food is surging.
Sources close to the deal said AWB would consider both offers but the Agrium offer looked like a “no-brainer.”
The battle for AWB marks the latest round of consolidation in the country’s grain industry as offshore players scramble for a larger slice of the action in the world’s fourth-largest wheat exporting nation.
Australia’s wheat industry is counting on a bumper crop this year, while suppliers in Europe and Russia struggle with drought and poor production that has helped push wheat prices to a two-year high this month.
Industry sources said that other big global competitors like Viterra and U.S. commodities firm Gavil Group have also looked at AWB.
The all-cash bid by Agrium, the largest agricultural products retailer in North America with a market capitalization of $10.5 billion US, came as a surprise and sent AWB shares soaring more than 30 percent on Aug. 16.
“There is a 25 percent chance that GrainCorp may look to match it or beat the AWB bid. Though the share price shows Graincorp shareholders don’t want a bid battle,” Tom Elliot, managing director at MM &E Capital said.
“There may be other Canadian interests, probably from Viterra.”
AWB shares last traded 29.7 percent higher at $1.42 Aus, below the $1.50 Aus a share offer.
GrainCorp shares jumped more than six percent to touch a nine-month high, indicating that investors felt it was unlikely that GrainCorp could come back with a higher offer. The shares last traded up 4.3 percent at $6.54 Aus.
Shares in other Australian agribusiness firms also rose on speculation of further merger and acquisitions in the sector, with shares in Elders Ltd. jumping around 12 percent.
AWB has long been seeking to partner with a global player after losing its monopoly over Australia’s bulk wheat exports two years ago, when the government abolished the single-desk system that the former Australia Wheat Board operated.
It needs to bulk up to compete with big global competitors like Bunge Ltd, Cargill and Glencore and has been shrinking ever since it lost its monopoly on wheat exporting in 2008.
That followed a judicial inquiry that found the firm had paid kickbacks to the former Iraq government of Saddam Hussein to secure wheat sales.
Viterra acquired Australia’s ABB Grain in a $1.4 billion US deal last September, making it one of the world’s largest grain handlers.
