Wheat and barley break last year’s actual yields
THE wheat market has been stealing the limelight recently with the Chicago Board of Trade (CBOT) futures pushing significantly higher through June and early July, only to retreat at the same dizzy pace ever since.
Meanwhile, the global barley crop has been ticking along nicely, with the most recent estimates pegging global production at 140.1 million metric tonnes (MMT).
This is an increase of 1.6MMT on the July number, but still a decrease of 7.8MMT year-on-year. Like wheat, the Black Sea region is having another good year, with Russian and Ukraine production estimated at 18.5MMT and 8.7MMT respectively.
Both estimates have increased over the past month as headers swung into action and actual yields surpassed expectations. Production for the region is now on par with last season.
Elsewhere, Canadian estimates decreased by 0.6MMT over the past month, to be down 1.8MMT on 16/17 production.
The European Union (EU) crop also went backwards in July, with a 0.5MMT decrease bringing estimated production down to 58.6MMT, 1.2MMT lower than last season.
Here in Australia, production is currently estimated at around 8.5MMT, well below last year’s record of more than 13MMT. The dry start to the season has had a huge impact on all winter crops and barley has not escaped the wrath of mother nature.
On the demand side of the equation Saudi Arabia is the world’s largest importer of feed barley.
The Saudi Arabian Grain Organisation (SAGO) has exclusive purchasing rights for their feed barley. In the 2016/17 marketing year they ran down their stocks, importing less than 8MMT against 9.5MMT of domestic demand.
Early last week, SAGO announced the results of their most recent tender, buying 660,000 MT for October delivery. Black Sea and EU exporters were the winning origins.
This follows a successful tender for 900,000MT in July, and brings the total purchases over the past four tenders to 4.6MMT.
The average price was US$203 Cost and Freight (C&F), around US$2 less than the previous tender.
Saudi Arabia tenders for two destinations, Red Sea ports and Arabian Gulf ports. Despite the freight advantage Australia enjoys into the Arabian Gulf ports over Black Sea or EU exports, the average Arabian Gulf ports tender price was around US$10-15 under current Australian replacement values, depending on the load port.
The other major global importer of barley is China.
A significant portion of these imports is malting barley destined for Chinese malt houses and the domestic brewing market.
The demand for the Australian product is relatively inelastic at around 2.5MMT per annum.
Nonetheless, France and Canada are major competitors and some of this demand can switch if Australia is uncompetitive for extended periods.
The record Australian crop last season meant the export task was huge.
The lower domestic values at harvest and through the first half of 2017 meant Australia was able to capture a higher proportion of the Chinese feed barley market in the first and second quarters. The second half of the year will be different as a Ukraine crop is available and they have sold a substantial portion into China and Saudi Arabia.