There’s been a buzz recently in the malt barley market with talk of new crop 2011 bids ringing up around $5.75 a bushel. That’s pretty exciting. So a grower asked me about that, and if one could expect some real improvement on what has been to date, a rather disappointing return on current marketing year malt barley.
In a nutshell, unfortunately, it doesn’t appear too likely we’ll see an appreciable upside to the immediate old crop price outlook. While prices are pegged at the higher end of the longer term spectrum of malt barley returns offered by the Canadian Wheat Board, they nonetheless are considered a disappointment for growers as returns for feed barley this year are quickly closing the price gap.
The two row malt barley November pool return outlook at $253 a tonne (down $7 from the October PRO) is now only $20 a tonne above the Pool A feed barley PRO ($232 a tonne). That differs rather radically from the reports I get from our Australian colleagues who report that malt barley there trades at $100 a tonne premium to feed.
The quick and dirty
The Canadian Wheat Board, as they would do in most years, contracted to sell a reasonably sizeable quantity of malt barley to domestic maltsters much earlier in the year, and of course at lower prices than are seen today in the offshore market.
And as it turned out, given the influence of Mother Nature, Prairie farmers produced much less malt barley this year. While one would normally suppose that less malt barley would mean higher prices, that's not what happened in this case. That's because what limited supply that qualifies as malt quality was largely already spoken for in those earlier sales. That means the CWB has very little left to sell at current higher market prices, and not enough to result in any meaningful appreciation of the PRO. Sad but true.
If you have uncommitted good quality malt supply, storing it for 2011-12 is making economic sense now that we are hearing of a CashPlus program coming at $5.75 a bushel, two row for September-December 2011 delivery.
OK, that $5.75 a bushel is on the table for limited quantity and selected locations. The malt industry is now recognizing that it is going to get left behind in the looming 2011 acreage battle unless something is done. Growers are becoming increasingly disinterested in growing barley. That becomes all the more evident with Statistics Canada's estimate of total 2010 Canadian barley production, down well below trade expectations at only 7.6 million tonnes, threatening to be the smallest crop in modern history.
The situation for the malt industry only becomes that much more alarming given the Australian harvest problems of the past two to three weeks. Australia is normally a significant producer-exporter of malt barley, but not this year.
Of course, this early new crop bid at a higher price is a slam-dunk draw for any “uncommitted” 2010 good quality malt barley production, though some pause for thought when considering signing up for new crop 2011 production.
It’s a much higher price than is available right now certainly for old crop, but relative to alternative cropping options, $5.75 a bushel malt barley is actually no better than OK. For instance, a soft white wheat is showing about $5.50 a bushel potential for next year. On a comparative gross per acre return basis, that doesn’t make malt barley an automatic cropping option, especially with the lack of an Act of God clause amid the heightened production risk in being downgraded to feed for whatever reason.
So there appears to be some recognition of malt barley supply problems that inspired this limited higher price offering from the malt industry. But I don’t believe this is a situation where you better jump on it now if offered. It is likely that additional programs, at least at similar price offerings, are sure to follow -- hopefully some with the inclusion of Act of God.
If you are confident in your opportunity of attaining malt quality next year, sure, this is a good opportunity to sign on to. But one shouldn’t feel the need to be rushed into signing on to this contract offering.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.