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Barley prices outperform, as Chinese imports grow

Expectations for China's corn and soybean imports may be in decline, but not those for its barley purchases – leading it into "increasing" competition with other buyers, and supporting prices.

The country is expected to import a record 2.7m tonnes of barley this season, following a poor domestic harvest.

And even assuming better yields this year, purchases will not decline much in 2014-15, to 2.5m tonnes, the International Grains Council said, lifting its estimate for China's imports by 100,000 tonnes.

That volume is second only to Saudi Arabia's imports, estimated at 9.0m tonnes, with Japan ranked the third-biggest buyer with volumes of 1.3m tonnes.

'Direct competition'

Unlike Saudi Arabia, which uses barley for feed, China's consumption is primarily for food and alcohol purposes, including as a base for the popular local spirit baiju, which can also be made from the likes of sorghum.

China is also the world's top beer drinking country.

Nonetheless, Chinese maltsters' willingness to rely on lower quality barley, rather than just grain specified in Western exporting countries as malting grade, means its growing imports are weighing on supplies of feed barley too.

"China's purchases are increasingly affecting feed and other non-malting grade barley markets," the IGC said.

China's purchases of non-malting barley such Australia's "fair average quality", or FAQ, grade has put it "into direct competition, not just with malting barley buyers, but with feed barley purchasers, such as Saudi Arabia and Iran, and the major food barley buyer, Japan".

Production declines

China's barley import needs are being spurred by a decrease in domestic production and, indeed, the IGC slashed its forecast for the country's 2014 harvest by 600,000 tonnes to 1.7m tonnes, a 29% decline year on year.

"Government moves to bolster wheat, corn and rice production has led to a move away from barley, which does not receive price support," the council said.

However, the grain has fallen out of favour in many exporting countries too, with the IGC also cutting its estimate for production in Canada, one of the top exporters, by 1.4m tonnes to 9.8m tonnes, citing reduced sowings and an assumption of yields lower than last year's bumper levels.

That would be Canada's third-lowest barley harvest since the 1960s.

Statistics Canada last week estimated Canada's barley sowings at 6.31m acres, down 773,000 acres year on year, and below the expectations of most analysts, some of whom had forecast a rise in acreage.

Price impact

The squeeze on barley supplies, which the IGC sees cutting world stocks by 2.6m tonnes to 24.8m tonnes by the close of 2014-15, has been reflected in prices, which have outperformed those of wheat.

On the Paris futures market, for instance, malting barley prices have risen by 9% over the past month, compared with a small fall in milling wheat values, on November basis,

Malting barley's premium over milling wheat has risen to 18%, from 7% a month ago.

The CWB - the former export monopoly for grains including barley from Canada's Prairies – last week highlighted the role of China in supporting malting barley prices.

"International malting barley prices have remained stable… as a result of the continued demand by China for malting barley and the decline in world barley seeded acres," the CWB said.

It kept at Can$280.00 a tonne its forecast for prices to farmers for malting barley contributed to its pools, while cutting by Can$8-9 a tonne its forecast for payouts for wheat.

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