FOR the past 12 months the barley market has provided nothing but risk and confusion to the grower with the Eastern States drought breaking, followed by the Chinese tariff decision in May 2020, dragging local barley down to relative prices not seen in Australia for a long time.
The barley collapse even saw wheat prices significantly lower as drought demand collapsed and local feed markets adjusted sharply to new price dynamics.
The damage is done, for now, and we are fully adjusted on price to life after full China access.
We can move our focus forward and concentrate on the opportunities which are certainly present in the market.
Australia does not lack barley markets or demand at today's prices
Middle East
In the upcoming December-July period, Australia is the cheapest origin to Saudi Arabia, generally the largest global barley user.
We are also cheapest to other Middle Eastern demand in Kuwait, UAE, Jordan and Oman.
These are the truly consistent, unwavering barley demand countries where we are more sheltered from policy adjustments, local grain production protectionism and the price risks associated with being in a "premium" market which sits above the world base price and, basically, has further to fall should that demand diminish.
In the past five years, we have shipped a total of about 3.2 million metric tonne (mmt) to the Middle East consumer, averaging about 650,000 metric (kmt) tonne per annum.
This season, we expect to ship around 2-2.5mmt to the Middle East before we run low on stocks.
We are pricing significantly more demand today - in fact, Australia could theoretically clear it's entire barley export program of about 5mm to the Middle East consumer in about eight months of shipping if we needed to.
Asia
Japan has been a consistent buyer of Australian Barley, with 700kmt - 1.1mmt type annual export range over the long-term.
We are buying increased market share in Japan today, as our usual competitor in Canada is completely focused on the premium China demand.
In the past six months, we have noticed an increasing Japanese export share ex-Australia, which we expect to continue for the foreseeable future.
Thailand is again expected to see the largest growth in barley demand, continuing the trend we have seen over the past four years.
At today's price, we expect demand to almost double to 1.5mmt this season, with very steep discounts to feed wheat encouraging local demand into the feed sector - specifically dairy feeding.
Thailand barley demand has grown from around 20mmt in 2016/17 to about 800kmt in the past year.
This explosion in growth is largely due to feed grain import protectionism, to encourage local corn production with high local prices, as regularly seen in Asian countries.
A demand growth like this is not risk-free, with the government no doubt seeing pressure to tariff or impose limitations on barley imports similar to feed wheat where the Thai consumer must buy 3mt of local corn to get a 1mt of feed wheat import permit.
Australia has a lot to lose here and, similar to Philippines' feed wheat access, it is very important that our free trade agreements which facilitate this access are upheld.
China
Although not easily accessible to the Australian farmer, China is still the largest barley consumer in our region and this season it is very likely they will be the largest importer in the world.
Therefore China demand and price action is still a key price driver for global and, indirectly, Australian barley values.
We are seeing a feed grains demand explosion in China, where a combination of factors including recent years corn destocking, import barriers for feed products including DDGS, pig herd recovery from African swine fever and recent floods affecting production are coming together to create a substantial feed grains deficit.
Some analysts are predicting feed grains demand to be five to six times higher than original estimates at the beginning of the season, but for barley specifically, these estimates have merely doubled.
We have seen the global Freight on Board prices for barley strengthen over the past months, with Black Sea and European values up around USD 30/mt versus northern hemisphere harvest lows.
This rally has been consolidated by recent wheat moves higher, which barley has been struggling to follow dollar for dollar.
The price of the China able origins of Ukraine, France, Argentina and Canada have continued to trade a premium to the generic countries, mostly Russia, Australia and other EU countries like Germany (who are not China approved).
China is a major factor leading the price higher
The Chinese barley market, like sorghum and corn, is significantly stronger over the past three months, with barley up around USD 40-50/mt, and sorghum seeing an astonishing $70/mt move.
This should be no surprise when China purchased around 10pc of the US sorghum crop within a week of the announcement.
Australian barley currently lands China around AUD 60/mt discount to the global equivalent, meaning that regaining Chinese market access would see Australian prices move considerably higher.
This rally would be likely to be significantly more than the cost of a year's carry and finance.
This trade will be put on by some very long-term players, including growers.
For some growers, especially mixed farmers in more variable areas, there is more than one consideration in the case, with barley being the obvious on farm feed stock and drought hedge.
Australian exports for barley, like wheat, are heavily reliant on Western Australia logistics to supply the volumes required by the market, especially in the peak period January to June, before we see northern hemisphere new crop arrives.
This season, with big eastern Australian crops, you may expect higher competition for exports from Victorian and New South Wales sellers.
But, with the current wheat/barley spreads (see chart) encouraging max domestic inclusion and the very real supply chain limitations in the Eastern States, we expect WA to export more than 50pc of total barley this season, with more than 60pc of peak demand coming from WA.
Surprisingly, the expected WA share of total exports is around 10pc above the 2010 to 2017 average share.
