POST-HARVEST DEMAND WILL PROVIDE PRICE SUPPORT.
BUT A STRENGTHENING AUSSIE DOLLAR WILL LIMIT GROWER PARTICIPATION.
- Based on the current trajectory of Chinese imports, Australia could run out of barley before the end of the 23/24 marketing year. (this will not happen in practice as the price will need to rally to prevent deficit exports)
- Competing origins could limit Australian demand, but that is not the case today.
- Lots of Chinese business is on the books from Australia already ( >3mmt). Price is bid (up US$5 since last week)
- CURRENCY MANAGEMENT IS VERY IMPORTANT for price performance – export barley is bullish in USD, but a rallying AUD will offset this unless hedged.
- Lack of grower selling hurting nearby export shorts.
- FAQ (fair average quality) will attract a premium to generic feed.
- Malt will attract a premium in export markets.
- Chinese corn is strong – should support imports. Up US$20 Since late October.
- Container rates into China near historical lows – should see packers running full throttle to meet this demand.
CHINA – THE MARKET
China has come out strong, purchasing over 3mmt from Australia since the tariffs were lifted. All this while simultaneously buying French. It looks to us like their appetite for barley remains insatiable.
Official October barley imports to China just came out and were 1.22mmt (comprising 313kmt Aussie, balance French). Up 350% year on year and up 200kmt from September imports.
This pace supports our bullish view and continues to throw serious doubts on the USDA’s 7.5mmt total import forecast. This 7.5mmt forecast is from Oct 2023-Sep 2024. The Oct figure is 16% of their annual forecast in one month.
We are working on total import figures closer to 11-12mmt.
Of this, Australia will supply as much as we can get out the door. But our available supply limits total exports to around 5.5mmt. Let’s also not forget our smaller inelastic buyers of Australian barley (Japan, Vietnam) who will want part of this.
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.
Corn prices in China are up US$20 since late October, export prices for barley have rallied >US$5 since last week.
Australia will not have China all to ourselves and we’ll need to compete on price with Argentina, Canada, France and Ukraine to a smaller extent. But we are very competitive today on price and we should have a reasonable quality premium, especially in the FAQ/Malt space.
The recent pressure we have seen on prices has been driven by harvest pressure in the Northern NSW and Queensland markets, aggressive selling to China by WA traders, likely in response to grower selling in the West and some offers being shown out of Ukraine for minor tonnages.
As expected, we are beginning to see that pressure is overridden by China demand, as bids take control of the market and this price pressure wanes.
Slow grower selling has caught the trade, forcing them to focus on nearby execution and question the value of the current China export bid. Export markets are struggling to find a willing seller at present.
We see the potential for prices to continue to recover and for the China market to move higher on price to continue to extract the tonnage from the market.
China’s demand function in this market should rally the price of barley until it doesn’t make sense to export it. With barley at such a discount to wheat, the domestic market should be pricing barley over export values to keep it in the country.
This is not happening at the pace it needs to which creates a lot of management opportunities for Flexi Grain.
- Hold, hedge currency and Export Mar-June.
- Hold, hedge with local wheat. Wait for the balance sheet to correct the spread between wheat and barley
- Combination of 1&2.
Flexi Grain has export capacity allocated to barley and China market access in place, we see good potential for price performance in Barley.POOL SCHEDULE PDF
Significant consideration should be given to the risk of currency movement for those holding unpriced grain. The AUD is fluctuating and whilst it is offering some great hedging opportunities, unpriced/unhedged grain is fully exposed to the risks associated with AUD if it appreciates –
USD$250/mt @ 65.0c = $384.61/mt
USD$250/mt @ 70.0c = $357.14/mt
Flexi Grain will be actively managing this risk for our growers via currency hedging.
HOW TO PARTICIPATE
Growers wanting to participate in this program can do so via a fixed tonnage contract. Once committed we will begin the process of allocating your tonnes to upcoming FX hedges, shipping capacity and hedging opportunities, based on quality and delivery location.
Estimated grower return will not be published at this stage as final pricing will be determined by the abovementioned market influences. A management fee of $10/tonne will be deducted from Grower Returns.
Flexible Payment Options & Deferrals
|OPTION A (DEFAULT)
|HARVEST ADVANCE 5 DAYS END OF WEEK
|HARVEST ADVANCE 5 DAYS END OF THE WEEK
DON’T MISS THE BOAT
CONTACT TODAY TO PARTICIPATE WITH TONNES
Call Dustin Lovell to secure a tonnage contract or seek further details.
REGIONAL MANAGER, VIC