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Grain market distortions wrought by coronavirus see barley role reversal

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That old adage of the US setting trends, which Europe follow, has transferred to grain markets.

 

The US has for some months witnessed the anomaly of lower-quality, biscuit-grade soft red winter wheat, as traded in Chicago, selling for more than higher-protein stuff. Even at some point gaining a premium to top notch spring wheat, as traded in Minneapolis.

 

The topsy turvy pattern reflects the tighter supplies of soft red winter wheat (2019-20 stocks-to-use ratio of 36%, using US Department of Agriculture forecasts) compared with hard red winter wheat (56%) and hard red spring (42%).

 

Role reversal

Now that trend has switch to Europe too, where malting barley premiums have near evaporated – and even gone negative. At least, on paper.

 

Agritel data show feed barley trading at E169 a tonne on Thursday, up 9.0% so far for 2020.

 

Malting barley, meanwhile, is priced at E160 a tonne, down 0.6% for the year (which it had started with a E6-a-tonne premium on this dataset).

 

Origin effect

The reversal reflects in part the fact that the data are taken from different locations – the feed barley values in Rouen in northern France, already taken to port so with that cost factored in, and the malting ones inland at Creil, closer to Paris.

 

However, it does illustrate supply and demand dynamics too, with ample supplies of malting barley available – while demand is being sapped by knock-on effects of the Covid-19 outbreak.

 

Even for malting barley buyers who did not wrap up their purchases in the autumn, as most did, the chances of them needing to dip back into the market have been slashed by European lockdowns on bars and restaurants.

 

“I am not sure that even if this [coronavirus outbreak] is over in a few weeks, beer consumption will be down,” an Agritel source says.

 

Market message

That has left malting barley producers with two options – either selling their crop for feed, as the market is telling them, or hold crop to next season in the hope of better prices.

 

But the chances of a premium re-emerging have been cut by the weather improvement which is expected to see weekly FranceAgriMer data on Friday show rapid progress in the country’s spring barley sowings.

 

A third option, drowning their sorrows, may help, but not by much.

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