Barley growers across Australia have been left frustrated and questioning the long-term direction of what is generally a stable returner.
The recent decision by the Chinese government to impose the 80.6 per cent tariff on barley, due to the anti-dumping investigation, shocked the barley market, with the tariff well above expectations. Most thought it would blow over, especially during the COVID-19 pandemic.
Although we may not agree with it, or the true reasoning behind it, the cold, hard fact is that it is in place. Appeals and challenges to the World Trade Organisation will most likely fall on deaf ears. Therefore, it is likely to remain in place for five years, barring some hopeful political harmonisation between the two countries.
Initial estimates suggest we will need to find a new home for about four million surplus tonnes for this coming 2020-21 harvest.
Saudi Arabia seems like the most logical option, being the biggest importer of barley globally, but we would have to compete with Black Sea and European Union countries that have a strong presence in this market. This has already come at a cost, losing the premium we had been receiving into the Chinese market, by knocking $30 to $40 off new season pricing since the tariff news.
Dealing with this situation will require addressing all the possible risk factors and setting out effective ways to mitigate them.
Australia will need to utilise and develop smaller barley markets, such as Japan and Indonesia, while also targeting the new malt barley opportunities into India, which has now allowed the use of methyl bromide as a treatment on barley. There is also the possibility of extracting the malt in Australia and exporting that to China for their beer demand, as this doesn't fall under the tariff.
The supply and demand for barley was already under pressure prior to China's decision. Globally, African swine fever knocked out a fair amount of feed demand in China, a drop in beer consumption during COVID-19 dropped demand for malt and record low oil and corn prices made corn a more competitive feed option to barley.
As a business moving forward, dealing with this situation will require addressing all the possible risk factors and setting out effective ways to mitigate them. Some farmers were lucky enough that the news of the tariff being implemented, and subsequent fall in new season pricing, came just before they were sowing barley, and they were able to swap out to alternative commodities.
Related reading: Barley may find new markets in Thailand
Depending on location, wheat, lentils and canola have been the main substitutes. If the decision was made to swap out of barley, then positions on the alternative crop need to be revisited. While wheat, lentils and canola are still at high decile numbers for 2020-21, price risk needs to be managed by hedging within the grain guidelines of your business.
Growers who already had a solid base of forward sales leading into seeding will be grateful for the grain marketing position they had in place. They will be able to average out their barley sales using the high decile 8 and 9 numbers locked in prior to the tariff disruption.
Those without any forward sales in place are facing the most price risk. With the Australian dollar still recovering from its record lows, it is crucial we watch the consequences it has on forward pricing.
Through the middle parts of the year we will begin to see the northern hemisphere start its harvest, where markets tend to bounce around.
The $210/t to $220/t we have been seeing for barley is still a decile 5 price and we don't have to search too far back to find times when farmers would've been extremely happy with it.
If your cropping enterprise has no guidelines established, it will be beneficial to set out strategies to help manage the price risk on all grains, but especially barley.
- Start the day with all the big news in agriculture. Click here to sign up to receive our daily Stock Journal newsletter.