GLOBAL barley markets have been quite subdued and uneventful in recent weeks and appear to be in search of news that will set the tone as we enter the northern hemisphere winter months.
The trade has been expecting a tender out of Saudi Arabia for the last few weeks, but nothing has been forthcoming. The Middle East kingdom is the world’s largest importer of barley but is forecast to reduce imports to around 8 million tonnes (Mt) in 2017/18. This will be down from more than 9Mt in the previous season.
The Saudi Arabian Grain Organisation (SAGO), which has exclusive buying rights for feed barley, has indicated it was looking to partially substitute domestic feed barley consumption with imported corn due to the uncompetitive price of barley relative to corn and other stockfeed ration alternatives.
The opportunities for corn in Saudi Arabia are huge. Their dairy industry is state of the art by world standards and the poultry industry is expanding rapidly, supplying both the domestic market and into neighbouring Gulf countries.
One of the biggest suppliers of feed barley into Saudi Arabia is Ukraine. Interestingly, the Ukraine farmer has been swinging spring barley area across to corn in recent years. New varieties and vastly improved farming practices in Ukraine have significantly increased the profitability of corn relative to barley.
Whilst the global corn market is extremely competitive, Ukraine will be extremely well positioned to increase their exports as Saudi Arabia increases imports. Currently, the world’s fourth-largest exporter of corn, further increases in production and exports could easily see Ukraine challenging for a place on the podium in the not too distant future.
Grain imports into Saudi Arabia have two primary discharge points, the Arabian Gulf port of Dammam and the Red Sea port of Jeddah. Current international barley values see European and Black Sea origins the most competitive into Jeddah with January delivery priced at around US$220/t Cost & Freight (C&F) against Australian values of around US$227/t C&F.
The story is a little different into Dammam. Australia is still trading at a premium to European and Black Sea origins but the southern hemisphere’s second largest barley producer, Argentina, is the most competitive origin for January delivery at around a US$10/t discount to Australian offers and a US$5/t discount to the cheapest European supplier.
In reality, much lower production here in Australia this season, compared to last, and relatively strong domestic demand means that the exportable surplus will be much lower year-on-year. Australia will not have to chase export demand aggressively this season.
Relatively inelastic demand out of other Gulf states such as the United Arab Emirates, Kuwait and Oman will be preferred over the competitive Saudi Arabian demand. However, China will be the key market for Australian feed barley. Demand has been strong and Australia is currently the most competitively priced origin into that part of the world at around US$225/t C&F for January delivery.
In addition, international wires are reporting that the Black Sea region is close to sold out of barley and the winter export focus will turn to wheat and corn. This effectively takes one of the world’s barley biggest supply regions out of the market ahead of the Australian harvest.
The Argentinian farmer has also been a big seller of barley recently. This has enabled South American exporters to engage the international consumer and lock in a margin against these grower purchases.
So what will drive Australian barley values as harvest progress ramps up across the country? As we know sustained dry spells across the growing season have led to domestic supply deficits in some regions along the east coast and surpluses in others. The movement of grain to balance that supply and demand equation will be a key driver of eastern Australian values into the New Year.
In the traditional export zones of Western Australia and South Australia, growing tightness in global supply will most likely be the key influence. Traditional export demand and trade flows will be the driver rather than burdensome supply needing to find a home before the next northern hemisphere harvest.
Source: Nidera Australia Pty Ltd, a member of the COFCO International Group.