The barley market is getting a divorce.
But the division isn’t between the Canadian Wheat Board and the open market. It’s between the feed and malting markets, and it’s a growing divide that will probably affect production in the future.
“Regardless of the whole board, non-board issue, I think you’re going to see greater production of feed varieties and more contracting of the malt varieties,” said Canadian Wheat Board barley market analyst Neil Townsend.
“Everybody plants with the intention to grow malt barley,” said grain buyer Tim McKay of the Rugby, N.D., Farmers Union Elevator.
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“Everybody pretty much is growing malt barley varieties.”
While a substantial proportion of the prairie malting barley crop is grown under various contracts, the proportion is believed to be higher in places like North Dakota.
Townsend said he thinks contracts for malting barley will become more common in areas that expect to sell into that market, but in areas with large livestock populations the opposite may occur. There, more of the crop may be seeded to feed varieties and never touch the malting barley market.
Contracting will become more important on the malt side because maltsters are concerned with security of supply. The current CWB pooling system can make it hard for malsters to get supply. For example, when the price of feed barley followed corn’s rapid ascent, the malting barley Pool Return Outlook, an average reflecting a year of sales, was left in the dust.
This spring, the wheat board issued an early malting barley PRO for 2007-08 to show that malting prices had also climbed. The board wanted to make sure farmers didn’t write off malting varieties prematurely.
Townsend said the malting market will probably become attractive to growers who like to lock up prices or premiums well in advance. The malting industry is worried about long-term supplies of malting barley and no longer assumes it can simply attract supplies after harvest by offering premiums.
“It’s really now being seen by the industry as an input and the most important thing is not to price it, but to secure a supply of it,” said Townsend.
“You don’t want to be caught short of supply regardless of the price.”
Some maltsters and grain companies will offer premiums to the feed barley price. Others will simply offer fixed prices that completely divorce contracted acreage from the open market.
In areas with large livestock feeding operations like southern Alberta, more growers will probably shift to feed varieties and avoid the headaches of malting barley management and selection.
The Canadian and U.S. barley markets have been fundamentally divided for years because of the complications created by the wheat board structure.
But even if the wheat board’s barley monopoly is removed, that division is unlikely to disappear soon, McKay said.
Some barley flowing into North Dakota elevators is exported from the West Coast under U.S. government programs that involve subsidies, so Canadian grain won’t be allowed to mingle with American.
“If Canadian malt barley comes down, we’d have to IP (identity preserve) it separately,” said McKay.
“(Exported barley) has to be guaranteed U.S. barley, so there would be logistics at the elevators along the border to keep everything separate.”
