Ukraine War Impact on the Malt Barley
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Russia and Ukraine are among the largest producers and exporters of Barley and fertilizers. Together they are responsible for about 18% of global Barley production, and supply about 30% of global Barley exports. The war has already negatively impacted trade flows and, thereby also, the available global Barley supplies. Competition from other crops with higher gross margins could decrease Barley production, mainly malting Barley.
Before the war, Barley trade flows were already disrupted. In May 2020, China imposed restrictive quotas on Australian Barley and increased its reliance on Canadian, French, Argentine, and Ukrainian Barley. Ukraine captured the largest share of the Chinese business. China has become the largest destination for Ukrainian Barley, accounting for nearly 70% of Ukraine’s exports. In 2020/21, Chinese Barley imports from Ukraine reached 2.9m metric tons (mmt), a 2.0 mmt increase over the previous year.
Usually, most of Ukraine and Russia’s Barley exports are feed Barley, and their main destinations are Saudi Arabia, other Middle Eastern countries, and Northern African countries. According to the AgFlow data, Russia and Ukraine exported 2.9 million tons and 1.6 million tons of Barley, respectively, last year. Russia selected Iran as its largest trade partner (1.1 million tons), while Ukraine chose Turkey as the biggest Barley import partner (0.5 million tons).
China will more than likely quietly return to buying Australian Barley. Likewise, the next largest buyer, Saudi Arabia, will compete for European, Australian, Canadian, and Argentine Barley, as will all the other buyers. Along with the shrinking supply of exportable feed Barley, the economics are in place for Barley production to decrease, particularly malting Barley.
Malting Barley Factors
As has been well-documented since the beginning of the war, grain prices rallied. In Europe, prices of wheat, corn, and feed Barley increased similarly by about 30% after the start of the war (as of March 2022). The war has more directly impacted feed Barley than malting Barley. Consequently, malting Barley prices have only increased by ~9%. This has been reflected in the malting premium (spread between malting and feed Barley).
Malting Barley usually comes at a premium to feed Barley because malting houses demand high-quality Barley, which requires intensive and costly production management. In France, the malting premium even turned negative for a few days and is around USD 14/mt, as of mid-March 2022. In Argentina and Australia, the malting premium stands at around USD 30/mt, and in Canada, at USD 50/mt. Feed Barley prices have increased across essential origins, especially in France and Argentina.
Because of the change in the Barley market price structure, feed Barley, and wheat command higher gross margins than malting Barley. In the northern hemisphere, feed Barley’s gross margin was approximately 460 USD/acre, followed by wheat (380 USD/acre) and the malting Barley (375 USD/acre). In the southern hemisphere, the gross margin level was similar for feed and the malting Barley, while wheat’s gross margin was much lower (300 USD/acre). The gross margins show an incentive for farmers to move away from malting Barley to either feed Barley or wheat in this growing season.
Even then, malting Barley, which uses less fertilizer, is at a competitive disadvantage to feed Barley and wheat. Maltsters should be prepared to provide an incentive to farmers to produce malting Barley. Those incentives may be either higher prices or multi-year contracts, or both. There is an immediate concern about the supply of malting Barley, as malting Barley can be used for feed but not the other way around. If solid demand from the Middle East and China for feed Barley continues to decrease the spread between malting and feed Barley prices in essential origins, it will become economical to buy malting Barley for feed.
Other sources: RESEARCH
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