Chinese export demand poses a serious supply challenge to domestic shorts
- Australian barley is very bullish
- China has re-entered the market with a massive appetite to own Australian barley
- Orderflow changes as WA barley finds new home in China and QLD feedlots begin drawing on East Coast stocks
- Malt growers with access to export markets should be well rewarded as China competes with new Australian markets
It’s been a long wait, but finally, China has done what we have been thinking it would.
This provided us with a great opportunity to finalize the 2022/23 pool at strong values.
Barley markets have been well supported since China lifted their import restrictions on the 4th of August.
Markets did not show a drastic increase overnight post-announcement, with traders citing uncertainty around China’s phytosanitary requirements. But four weeks on and those issues have been resolved by most, with the current estimate of volume sold sitting at around 1 mmt for Oct-Dec shipment.
Chinese appetite for barley appears insatiable. Despite the 1mmt of barley sold for q4 shipment from Australia, we’ve seen China also buying French barley for the same period. Australia cannot offer enough and prices are around US$5 higher than the first feed business that was concluded.
According to the USDA, China’s barley import forecast for the 2023/24 season sits at 7.5mmt. We feel that this number is underestimated. The figures we are working on are closer to 10-11mmt, of which Australia will supply as much as we can get out the door. China is buying world barley because it’s cheaper than alternative feed substitutes. They’ll keep buying as much as they can at current prices.
The below chart and table highlight Australia’s previous barley exports into China and the % export share. In the big years, our export share ranges from 46-78%.
Given the start we have seen from China, can we expect this to be ongoing into 2024?
We think so. It’s also foreseeable that Australia’s export share will grow further, as we have less competition than in previous years.
Before the bans, when we were sending a lot to China. A large competitor was Ukrainian barley, which we know has its own set of export challenges now. The USDA forecasts barley exports from Ukraine at 1.8mmt this coming season, vs 4.4mmt and 4.9mmt in 14/15 and 16/17. Of the barley exported from Ukraine we expect to see very little into China, with the majority likely to be on road and rail into the EU. Seaborne exports are restricted to Danube river ports at present and the smaller vessel sizes there do not suit China execution at all.
We also note some sharp drops in Ukraine barley acreage over the last 2 years, which is important for global and Chinese barley supply going forward.
Canada will also have a lesser influence due to its smaller crop. Stats Can (Statistic Canada) recently called 23/24 production down 20.7% at 7.9mmt vs. 10.0 mmt in 2022. This could see export volumes of only 1.3mmt vs 3.1mmt last year. Of interest is that Canada’s low exports (1.5mmt) in 14/15 and 16/17 contributed to Australia’s large export share.
FAQ barley (germinating feed) is trading into China at $295 CFR for October/November and
Generic feed barley is trading at $275-280 CFR for October/November.
INDICATIVE OCEAN FREIGHT CHINA MAIN PORTS Q4 2023
|CRF USD (COST & FREIGHT)
|OCEAN FREIGHT (GEELONG – CHINA 50,000MT)
|less FOBBING COST
Supply & Demand Implications
If our assumptions on Chinese imports are correct, we expect to see a severe tightening in Australia carry-out stocks. China will buy as much exportable surplus as Australia can produce, but it will need to compete with Japan and Vietnam which have some inelastic demand for Australian barley.
We are also dealing with a significant year-on-year reduction in available supply (down ~3.5mmt), as well as increased domestic demand on the East Coast. Led by increased Wagyu production, dry conditions keeping feedlot numbers up and the likelihood of drought sheep feeding in parts of NSW.
We believe domestic consumers will need to compete on price to discourage over-exporting and maintain a local supply.
On the East Coast barley represents the cheapest available feed grain, with a limited supply of low-grade wheat. Long haul road freight sits at around 8.5 cents, which should encourage a bid from feedlots in Southern Queensland. For September feedlots are paying around $465 delivered Darling Downs for bar 1, which works back to a $330 ex farm Vic northern mallee.
The same Northern markets prior to the China announcement were leaning on WA supplies, which were getting shipped around on small vessels from WA to QLD. We have heard of 3-5 shipments being committed prior to the sanctions being lifted. Now that China is back, WA bulk exports will price better into China demand vs. execution to the East Coast (QLD feedlot markets). Interstate bulk shipping, like road and rail domestic execution, will be sent to SA small ports and Victoria, increasing demand for local grain in these states
Barley marketing – what to do?
There is a lot of info to consider here, but most of it is positive.
We see several options that should contribute to a successful barley marketing campaign.
- Export it
Direct export opportunities are plentiful and we are fielding import enquiries almost daily. Barley’s discount to wheat provides some local price management opportunities (selling wheat against barley), until we can commit to a new crop sale.
- Sell new crop wheat against it
This provides some downside price management, as well as ongoing exposure to export market increases, or local feed grain shortages.
- We see great potential for malt exports via bulk or container
China loves Australian malt, crops are tight in Canada and we also have a number of new buyers (Mexico, Peru, increased Vietnam demand) who we have exported to in recent years that may preference Australian quality. The spread for malt barley in export zones should provide great value this year, possibly better than last year. Those who can participate in exports should be well rewarded.
NEW CROP MARKETING STRATEGIES
|Sell into the cash market to domestic consumers
|Sell directly into the feedlot market using scale to create efficiencies and different modes of transport to reduce costs and maximise returns
|Proxy hedge to protect the downside by selling new crop wheat against new crop barley
|Export (export capacity in 10 port zones across 4 states)
|FAQ (blend to maximise returns)
|DCT (Delivered Container Terminal)
|Sell the malt spread pre-harvest and leverage by buying back BAR1 for further opportunities (i.e. resell back into the domestic, export, FAQ or DCT market)
Speak to your Regional Manager for more information or to discuss how Flexi Grain’s Hectare Contracts could help form part of your 2023/24 Grain Marketing Strategy.
A Marketing Strategy that eliminates wash-out risk, whilst still allowing pre-harvest market participation to maximise grain value.