Saudi demand for barley
AFTER an absence from the market of more than four months, Saudi Arabia’s state grain buyer (SAGO) finally announced a tender to purchase 720,000 metric tonnes of feed barley for arrival in May and June 2019.
They are seeking offers for delivery of 12 panamax cargoes (60,000 MT) over the two month period.
Saudi Arabia is the world’s largest importer of barley, and they have been absent from the market since early November 2018. The reduced global demand has depressed feed barley prices as global trading houses sought alternative homes for exportable surpluses sitting in the European Union, the Black Sea region, Australia and Argentina.
No doubt this market correction was part of the SAGO strategy as Saudi Arabian consumers utilised above average winter pastures and tapped into state reserves to satisfy domestic demand in the interim.
There has also been a shift in the demand profile for feed barley in Saudi Arabia with purchases of finished feed increasing at the expense of feed barley. These rations provide a more nutritional and balanced diet for the Bedouin livestock. This trend also accounts for the increase in corn imports into the kingdom in recent years.
This will most likely be SAGO’s final feed barley tender of the 2018/19 marketing year which concludes at the end of June. This means it will be the last opportunity for exporters to move substantial quantities of barley before new crop Black Sea exports start rolling in late June or early July.
In the end, SAGO booked 730,000MT for May and June arrival at an average price of US$211.86/MT cost and freight. The origins offered were Argentina, Australia, the United States, the EU and the Black Sea region with the successful seller having the option to choose the origin of the barley that they ultimately deliver.
The final tender price was almost US$55 less than what SAGO paid in their last tender. Argentinian export values have been quoted as low as US$185 free on board (FOB) in the last week and that looks like the most likely origin, particularly for the May and early June deliveries. Both the EU and Australia would be too expensive based on recent FOB values.
The SAGO feed barley tenders have a generous delivery grace period. Basically, successful sellers have the option of taking an arrival date penalty of one per cent of the price for each week their vessel is delayed. The cumulative maximum penalty is six per cent which effectively means the maximum allowable delay under the contract terms is six weeks.
The Black Sea crop has been maturing without any issues and warmer than average weather in early March has favoured early maturity of winter crops. With new crop Black Sea quoted at around US$185 FOB, and the freight advantage over Argentina, barley from that region appears to be well in contention for the June arrivals as delivery could be as late as first half July and still be within contract terms.
The big news out of the US last week was the record flooding in the western Corn Belt, including Iowa and Nebraska which are two of the top three corn producers. This early flooding was caused by rapid snowmelt combined with heavy spring rain and late season snowfall in areas where soil moisture is high.
Some major rivers, particularly the Missouri River, have smashed previous flood records by as much as four feet. What’s more, many of the nation’s well-engineered levees have failed to contain the unprecedented floodwaters. In some areas, ice jams in the river system are exacerbating the flooding.
The flooding is causing all sorts of issues with logistics and grain handling infrastructure throughout the Midwest. Many roads and rail lines have been washed out in Iowa, Nebraska and several neighbouring states. The catastrophe has also destroyed grain being held in storage around the region. Some Midwest growers have been hoping to ride out the US-China trade war by holding their corn and soybeans on-farm in silo bags and on pads, and a significant proportion of those stocks have reportedly been destroyed.
The flooding is fuelling market concerns about late planting and reduced acreage, and there doesn’t appear to be any respite from the rain in the near future. The US National Oceanic and Atmospheric Administration have forecast the flooding to persist in the region through to the end of May. Should this come to fruition it would leave little time to plant a corn crop within the ideal seeding window. In many regions, it is already being compared to the 2013 and 2015 season when 1.38 million and 970,000 hectares respectively were enrolled in the very generous prevent planting program.