SUMMARY – WE ARE SUPPORTIVE OF BARLEY PRICES LONGER TERM.  WHY?

• Current spread to corn in China is making barley attractive for the Chinese consumer
• China’s Import pace has been staggering (16mmt in 2023/24) 
• China’s barley demand continues to stagger (Possibly 11mmt in 2024/25)
• Reduction in global barley supply 
• Australia has been pricing significant feed demand for barley for the last year (16 mmt..)
• US tariffs are likely to increase under the Trump administration   
• Barley is cheap relative to wheat in Australia 

CHINA 

Import pace

China set a new record for barley in 2023/24. Importing 16mmt from October 2023 to September 2024 with Australia supplying around 40% of this. It was our third largest barley export year, but in the context of available supply it was a record. Leaving carryout record low.

Despite this, the local barley market has been full of sellers (particularly in WA) as producers and their advisors elect to sell early, rather than deal with political risk.  But we are not seeing that political risk play out from China’s side.  Their October imports were 940kmt, on pace for another 11+mmt year.  

DEMAND  (Previous demand / business on)

There is plenty of demand around today from Chinese buyers.  Whether it’s feed or malt, they cannot get their hands on enough of it.  We’ve seen the feed price rally from a low of US$248 CFR 6 weeks ago, to ~US$260 today.  Ocean freight dropped ~US$6 in the same timeframe, so local bids should have improved further, but a weaker dollar and grower selling distorted this. 

COMPETING SUPPLIERS 

Australia, Canada, France and Argentina are the major suppliers of barley to China. This year we’ve seen significant reductions in exportable volume in these areas.  We calculate a maximum available export supply of 10mmt.  Not enough to satisfy the current China pace.  Price will need to rally to negate this at some stage.

The demand is being felt in Australia, enough for us to forecast a supply problem sooner rather than later..

AUSTRALIA’S SUPPLY AND EXPORT PACE

CARRY IN STOCKS CHANGE IS THE MAJOR ANALYSIS POINT

Also from a market perspective, the massive carry in of 3.48mmt in 2023/24 was sold prior and during last season, which had a capping effect on the market.  This year is different, as the cary in is 80% smaller (0.78mmt) and similar production year on year.   

**The distribution of exports at a state level is also important.  WA to ship 3.9mmt this year, 70% of our total exports vs 49% last year. **

We forecast that only 5.5mmt of barley can be exported from Australia this year.  But the current pace suggests a number much larger…

The above chart shows cumulative barley exports from Australia over the last ten years. 

This year, Oct-Dec exports (stem plus containers) indicate that at least 1.5mmt will be shipped.  We don’t expect this to slow in Jan/Feb based on the demand and sales that we are witnessing. 

This is a notable figure.  We have only shipped 1.5mmt Oct-Dec four times in the last 38 years (those times were literally the last 4 consecutive years) and in those years we’ve shipped 7-8mmt. 

So what does that tell us for Australian barley? The pace needs to slow to sustain supply. The price needs to drive this, but it is not……. 

WE ARE EVEN MORE SUPPORTIVE EAST COAST BARLEY. WHY?

QUALITY PROFILE OF FEED:

Above is our expected quality forecast and production. The net changes in available supply are not overly alarming.  But on the feed front, the quality is very important.  Why? FAQ (Fair Average Quality – China demand)

Retention in WA feed barley is insufficient to reach a desirable faq spec (65.6 vs 68 % last year), a spec that Chinese maltsers will pay a US$5-10 premium for.  In SA protein levels are too high (average 13% vs 11% last year) which make the feed supplies there not appropriate for faq. 

This lends to increased export demand for the east coast, which is not in a supply position to export huge volumes…

AVAILABLE SUPPLY VS DEMAND

Exportable supplies on the East Coast are down significantly year on year.  Carryout is very tight, but supply is balanced.  The 50% reduction in Victoria is offset by the 50% gain in NSW. 

But we don’t feel that supply can stay balanced for too long.  We think that export demand will put pressure on, and the current price is not behaving in a way to deter it. 

Especially considering the potential for increased domestic demand, taking note of the recent cattle of feed numbers (chart at very bottom).  So we feel there could be a point where both the domestic and offshore buyer come together at the same time. 

We also feel the Chinese FAQ buyers aren’t going anywhere soon.. Why? 

CHINA MALT SITUATION 

China has over 6.5mmt of malt production capacity.  They only produce around 1.5mmt of malt/faq. The balance needs to be imported.  The major exporting regions that feed this demand are France, Canada and Australia.  This year, the French crop is over priced and under quality, which leaves Australia and Canada.  Canada’s volumes are not there to spell tangible longer term competition, which puts Australia in a strong position for the balance of this marketing year.

Maltsters in China will often buy FAQ rather than malt, when the spreads are too wide.  We have it on good authority (from a very large malt buyer in China), that they are targeting FAQ this year, due to the malt price.  But faq is becoming a rarity in itself. Forcing them to go one step lower and just bid germinating feed. 

It is more economical for them to buy FAQ if they can get their hands on it and their price will reflect this accordingly.  It usually trades a US$5-10 premium to generic feed.  But what is also notable is that they’ll often buy a hatch of malt with faq. So by selling one, you enhance the other. 

CURRENT PRICING

Current bid $260 CFR for feed barley that germinates (low of $248 CFR ~ 6 weeks ago).  Freight price  has dropped ~US$6 in that timeframe from US$20 to US$14, add US$8 for Kembla.

Note that Chinese maltsters would prefer to buy faq than “feed that germinates” but they are only seeing WA offers, where that’s not achievable. They’ll pay better prices for FAQ quality feed. 

ADD CONTAINER CALC via NSW and VIC

What’s notable here is that WA has been the only real seller of bulk barley in the last 3 months.  They are 75% of the Oct Dec exports and continue to be the most aggressive seller into China.  Currently pricing / selling Jan-Feb 2025.

Growers in WA have been liquid sellers of barley (~80% sold), the threat of a Chinese policy change has expedited the barley sales program over $300 FIS. This is a contrast to the East Coast.

They are the price leader/maker. Once that slows, we’d expect the east coast offers to be more dominant. 

FLEXI GRAIN

Flexi Grain’s traders have done many exports in previous roles.  But we exported our first CFR malt and faq cargo to China in September of this year.  Having gone through an extensive registration process.  Now that we have proven ourselves to the buyers in China, we are overwhelmed by demand, demand for prompt barley, of reasonable quality. They can’t get their hands on enough of it. 

We couldn’t be much closer to the demand and feel it’s important to pass our observations on. 

ACTIONS TO TAKE

1. HEDGE FX AND CARRY BARLEY – CARRY GRAIN INTO 2025 AND HEDGE CURRENCY TO PROTECT AGAINST A STRENGTHENING AUSTRALIAN DOLLAR . 

2. POOL WITH FLEXI GRAIN AND LET THEM;
   1. MAKE A 60% HARVEST ADVANCE
   2. MANAGE CURRENCY
   3. EXPORT YOUR GRAIN
   4. PAY YOU THE EXPORT PRICE