In October last year Saudi Arabia’s state grain buyer, the Saudi Grains Organisation (SAGO) assumed responsibility for the purchase of the state’s wheat and feed barley requirements.
Last week it announced the results of its second tender, buying 1.5 million tonnes (Mt) of feed barley for arrival from second half March through to first half May.
A total of 22 companies from across the globe participated in the tender with 25 optional origin panamax (60,000 t) cargoes booked in the deal. Australia, South America, European Union and Black Sea were the nominated origins.
According to SAGO around 1.2Mt will be shipped to Saudi Arabia’s Red Sea ports with values ranging from US$185.81/t to US$193.99/t cost and freight (C&F). The balance will be discharged at Persian Gulf ports at values ranging from US$190.91/t to $195.88/t C&F. Prices are higher than the first tender back in December with Red Sea and Gulf values up around US$3/t and US$10/t respectively.
Under SAGO, the Saudi Arabian tenders have changed from load dates to arrival dates, adding risk from an exporter’s viewpoint. Additionally, both of the tenders to date have been for nearby positions, which means they are effectively paying a premium as exporters build the possibility of delay penalties into their offers.
From an Australian origin perspective there are several key points to note. Price is not the limiting factor here as South Australian barley is the cheapest in the world at the moment and works comfortably into the Saudi sales. It appears to be stem capacity that is limiting the ability of Australian exporters to participate in a meaningful way.
Australian ports currently have an extremely busy export program and most shipping slots have already been allocated to existing business. Exporters who have purchased shipping slots cannot afford to hold them back on the chance that they may win Saudi tender business as the cost of forfeiting the elevation capacity is extremely high. Furthermore, the panamax-capable ports are the ones with the most stem pressure, therefore they have less unallocated capacity.
Another factor here may well be the current low price environment. There certainly seems to be some reluctance in grower land to engage the market at the current values. This is being reinforced on the east coast where extremely hot and abnormally dry conditions are encouraging the grower to hold and wait for a possible market rally.
Whilst current values should buy export business, the combination of limited available elevation capacity and lack of selling makes it difficult for exporters to book new business. Season-to-date the barley export pace has been solid with over 1Mt being shipped from Australian ports in January. This is the largest ever export month for barley and it appears that February may match or exceed this number. With a record harvest in the bin Australia needs to continue at this pace ahead of the northern hemisphere harvest to avoid a substantial increase in carry out.
The northern hemisphere is certainly the next region of focus from a barley viewpoint. As the snow melts and the crop emerges from its winter dormancy the crop condition and moisture status will influence market direction. An interesting point to note from the SAGO tender was the large participation by European and Black Sea exporters. To me that would suggest that they are happy with the crop conditions and are comfortable quitting the last of their old season barley over the coming months.
That is not the panacea we need to boost Australian values.
Source: Nidera weekly market report