Favourable autumn sowing weather, and the global hunger for feed grains, stoked forecasts of a tumble in European malting barley supplies from current highs – ideas being reflected in market prices.
The premium of Paris malting barley futures for January 2013 delivery, over the January 2014, stood at E2.25 a tonne on Friday – down from more than E37 a tonne a month ago – and is reflected in European cash markets too.
In the important Danish market, "the discount has almost disappeared", Matthias Wree at malting barley consultancy RMI Analytics said.
The narrowing of the discount reflects a growing belief that this year's strong European Union supplies, boosted by a jump in spring sowings after frost wrote-off many winter crops, may prove but a temporary blip.
Need for feed
Supplies will be depleted first by the temptation by growers to sell malting barley as feed, given the historically-low premium, of some E10 a tonne, for holding out for interest from maltsters spoiled for choice in their supplies.
Prices for feed grains are being supported by drought damage to the US corn crop, besides to former Soviet Union wheat production.
The low premiums mean farmers "see no reason" to sell their crop for malting, and take the risk of it not meeting quality specifications.
Of the surplus of some 2.0m tonnes of malting barley the EU produced for 2012-13, roughly twice "the typical amount, "up to 1.5m tonnes" may disappear as feed, Mr Wree told Agrimoney.com.
"The carryout for 2012-13 will be much lower than you would think from such a large harvest," he said.
Autumn vs spring
Furthermore, the prospects of a large 2013 malting barley harvest in Europe have been reduced by currently-favourable sowing conditions, which look set to encourage growers to favour winter grains.
"Farmers can get good prices for winter crop, they have quite good tilling conditions at the moment," Mr Wree said.
"They will want to try to maximise their winter crop area, and perhaps sell 20% of their expected crop at current prices. It does not look so attractive to hold back for spring barley."
RMI forecast spring barley sowings retreating to 2011 amounts, which Europe-wide reached 7.4m hectares, with coming in "regionally even below this level".