Reuters
By Gavin Maguire
CHICAGO, March 20 (Reuters) – It may be more widely known as a critical ingredient in beer production, but due to its widespread inclusion as an animal feed barley is a crop worth watching — especially in the wake of the recent announcement by Morocco to loosen import restrictions in order to ensure adequate domestic supplies of the grain.
Morocco’s removal of import duties sets the stage for a scramble by other importer nations to cover their own barley needs in the weeks ahead. And with U.S. barley prices among the cheapest in top exporting nations, U.S. barley stocks can be expected to decline as suppliers capitalize on that bump in global trade. But given the prevailing tightness of all feed grain supplies, any steep cut in barley supplies could set off a round of price strength in other feed alternatives, such as corn, in the weeks ahead.
DROUGHT, FROST HURTING 2012 SUPPLIES
Morocco’s steps to cut import tariffs on barley was a noteworthy development due to Morocco’s status as one of the world’s top growers of the crop (No. 7 in the world by harvested area and No. 12 by outright production in 2011.
In addition, Morocco rarely ranks among the top 10 importers of the crop (No. 13 in 2011), so the recent steps by that country to encourage imports stand out all the more and help to highlight the extent of possible supply shortages facing large barley consumers over the coming year following growing problems in the E.U. and Black Sea due to frost and in North Africa due to drought.
Saudi Arabia has been the world’s top barley importer for the past several years by a steep margin, followed by China and Japan. But whereas Saudi Arabia’s barley inventories have been edging higher in recent years, stocks levels in Japan, China, Morocco and elsewhere have generally been on the decline.
Furthermore, because barley consumption rates have held broadly steady in recent years, the recent shrinkage in barley stockpiles has placed downward pressure on the barley stocks-to-use ratio in each country, thereby pushing up prices in a number of regions.
Limited reliable barley price intelligence is available for all major consuming nations, but it is clear from a comparison of the export price of barley in an array of exporting countries that a firm price bias has gripped the market in recent days as global supply concerns erupted.
Price strength is particularly evident in top-five producer and major exporter Canada, which has seen the export price of barley climb by more than 6 percent since the beginning of March as it became increasingly clear that major consuming nations will likely need to draw supplies from all sources in 2012 in order to cover usage needs.
(Graphic of World barley prices:
Prices can be assumed to have advanced by at least a similar degree in major import destinations such as China, which is a major buyer of malting or high-grade barley and is clearly experiencing escalating feed grain costs after domestic corn prices recently scaled record levels amid ongoing efforts to source sufficient crop stocks to cater to the country’s expansive food and feed needs.
(Graphic of Chinese versus U.S. corn prices:
RIPPLE EFFECT TO IMPACT CORN
While the prospect of an upturn in U.S. barley shipments and prices may appear to be a parochial concern at first, the tendency for price advances in one feed grain to quickly result in similar strength in another should help put barley’s price action on corn traders’ radar.
Indeed, as can be seen in the graphic below, barley prices tend to move in close tandem with corn’s, and on occasion have actually proved to be an accurate leading indicator of what is to come in the corn market, such as in 2007 when barley prices burst higher in a precursor to what was coming in the corn market several months later.
(Graphic of barley versus corn prices:
With the U.S. corn planting season still ahead, U.S. planting and growing weather will still have the ultimate say on which direction the corn price trends over the coming weeks.
But given the strong likelihood of an increase in the demand for U.S. barley following Morocco’s recent steps to boost imports, savvy corn traders will be putting barley price and shipment data alongside their weather gauges as they attempt to navigate the corn market going forward.
(Reporting By Gavin Maguire; editing by Jim Marshall)
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