There has been plenty of talk over the past few weeks around the frost damage in Western Australia (WA) and its impact on cereal and canola production in that state. The unfortunate thing about frost is it is hard to quantify until harvesting commences. That said some of the stories are not good and total losses of up to 4MMT have been suggested by some observers.

Nidera Australia’s current national barley production estimate is around 10.3MMT, after allowing for some moderate losses in WA. However, like our wheat estimate, there is certainly some further downside if the worst production loss fears come to fruition in that state.

Unlike wheat, which we discussed last week, the barley carry out has tightened up quite considerably with a run of export business in the past few months. Nevertheless, domestic feed barley demand is under pressure with the widespread rain across Australia this year reducing supplementary feeding requirements. Conversely, the wide spread to wheat should ensure that feed barley maintains a significant inclusion rate in intensive feeding rations throughout 2017.

Looking at Australian feed barley values (as at Monday, October 17) versus export values there is still quite a spread that will need to be eroded, before it will work into export channels. The Chinese are sniffing around for feed barley offers for November or early December shipment. That would need to be satisfied with old crop which, as I said earlier is getting quite tight, or new crop out of the earliest harvest areas of Queensland or WA, as long as harvest is not further delayed.

The big problem is new crop Brisbane zone grower bids are remaining stubbornly high at around AU$195 port, more than AU$30 away from working based on a China bid of US$170 CFR. In WA, new crop grower bids remain supported by a scramble for early tonnage and the frost based production uncertainty. However, taking into account lower fobbing costs and slightly lower freight out of WA compared to Brisbane the numbers are closer to working, but are still AU$8 apart.

After China the next demand point is Saudi Arabia. The Middle Eastern state is progressing to a tender system and is not actively buying at the moment, but recent indications are around US$160 CFR. That is a significant discount to the nearby China values and puts into perspective the work Australian prices need to do to become competitive into that market.

Looking at the Newcastle zone, where grower bids for feed barley are around AU$180 there is still daylight between domestic bids and Saudi equivalent values. The same could be said for the Port Kembla zone and Victoria, which are both more than AU$25 apart.

South Australia is the most competitively priced feed barley in Australia from an export viewpoint with grower bids at around AU$165. That said, US$ CFR Saudi Arabia equates to a grower bid equivalent of AU$148 Port Lincoln, so the Eyre Peninsula grower is still seeing a AU$17 premium.

Growers may not like feed barley prices much, but the harsh reality is the world has an abundance of feed grains at the moment and values are reflecting that truth. If Australia has a barley export program of 6MMT over the next twelve months, 2.5MMT of which is malt to Asia (predominantly China), then we will certainly need Saudi Arabian business to clear the stocks and avoid a large carry into the next season.

Source: Nidera Australia Weekly Market report: Peter McMeekin is Nidera Australia’s Origination Manager.