It has been sixteen months since barley prices tanked thanks to export tariffs imposed by China. Over the past six months barley has crept higher, and while it still hasn’t regained all the ground lost in May 2020, barley is sitting at what is historically good pricing.
The latest Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) crop report lifted the Australian barley production forecast to close to 12.5 million tonnes. Barley production will be the third highest on record (figure 1), and most of it will be exported.
Despite the lack of exports to China in 2020-21, ABARES estimate we still managed to send 66% of the countries production overseas. Saudi Arabia, Thailand, Japan and Vietnam all picked up the slack, as Australian barley was relatively cheap. Figure 1 shows ABARES is again expecting strong exports in line with the strong production year.
Since China imposed tariffs on Australian barley the price has followed wheat prices reliably. Figure 2 shows the Geelong price has tracked at a steady discount to ASW. With a strong exportable surplus, the floor in barley prices has been provided by those using it for feed, as an alternative to wheat.
Barley has lower energy value compared to wheat, so in feed markets it is generally cheaper. In dairies the price spread to change over from wheat to barley is usually around $40-50/tonne. This is pretty close to the discount we are seeing now.
The international feed market is also providing some support to the barely market. Corn in the US has come back, but it is still $280/t in our terms. With expensive freight rates, the shorter trip to Asia might be providing some support for barley in feed exports markets.
Barley might be the poor cousin in pricing compared to wheat, and the very poor cousin compared to canola, but historically it is still priced pretty well. Compared to the past 10 years of pricing, barley is sitting at the 78th percentile. This means it has been cheaper 78% of the time, and more expensive 22% of the time.
What does it mean?
The 10 year barley price high might be some way off at $430/t, but it is still priced very well in historical terms. There isn’t a lot of downside, without falls in international markets, which are always possible. There is plenty of upside if China lifts import tariffs, but that doesn’t seem likely in the current environment.
Key Points
- The barley crop is expected to be the third highest on record, with most to be exported.
- Barley prices have improved, and are now at their highest level in 16 months.
- Barley is following wheat prices, but are still a cheap source of feed.
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Data sources: Trade, CME, ABARES, Mecardo
