2022-23 Barley Market Outlook – Nov 2022
Australian barley markets have notched up another tumultuous 12 months as the market faced a series of unprecedented market moving events. Writing an outlook seems as daunting as ever, with global politics, another weather affected harvest and supply chain issues seemingly wreaking havoc in the market at every opportunity – so perhaps I can confidently prelude this section that market conditions, once again, will be volatile and fast-moving over the 2022/23 marketing season.
Tight Global Balance Sheet
Globally, the barley balance sheet has continued to tighten on the well documented supply issues in many feed grain producers abroad. This saw 2022 form another material downturn in global barley ending stocks – now down to 17.25MMT in a year where many large producers struggled. In a more telling statistic, global stocks-to-use have dropped for the 7th consecutive year to now be at 10%, presenting a global barley market (and more widely in feed wheat, corn, and soybeans) that is slowly reducing its margin for error for future supply shocks. Reducing the sample size to the major exporters of barley, stocks-to-use is at more comfortable 20% but looking more closely – the bulk of these stocks reside within Europe and to a lesser degree, Australia. Australia is the world’s largest exporter of barley in 2021/22. This very much stresses the importance on not just Australia’s significant input into the global barley trade over the last 12 months, but its significance moving forward while it continues to be the world leader in export volumes.
Australia’s Relative Value
Australia’s unique position in the global barley trade has also made it the cheapest supplier of the grain into nearly all destinations, with Australia being forced to build new market share in countries we have historically not touched. With China out of our market due to tariff restrictions, Australia has not only built significant market share into Saudi Arabia, but also increased its volumes into South-East Asia, namely Vietnam, Philippines and Japan. Our ability to do this has depended on successive large exportable surpluses, and therefore our relative cheapness vs our competitors. The forecasted national barley production is set to reach over 13MMT for the 2022/23 season, one of the largest in history. Whilst this is a big crop, any production falter in 2023 will be quickly felt in a market that is currently so heavily discounted versus the offshore market. Prices therefore will likely be quite reactionary to any hiccups in the major cropping areas, whilst meaningful downside post-harvest will likely require a meaningful slowing in global demand, an element which admittedly has already been seen over the past 12 months from our biggest trading partner in Saudi Arabia.
Australia’s diplomatic relationship with China also remains a huge weight for barley markets moving forward. We are now approaching just under 2.5 years of exporting barley without the support of the world’s largest feed grain importer, with an 80.5% combined tariff still in place. Despite the doom and gloom, one may speculate that this commercial relationship has every chance to improve moving forward. Notwithstanding the presence of a fresh Australian government, but from the serious balance sheet issues evident in all major feed grain producing countries barring Australia, as outlined above. This tightness in our export competitors makes our barley a more attractive economic proposition than what we have been previously, behind a larger context where food security is a huge priority in the fallout of the Russia/Ukraine conflict. This of course may build towards a circumstance that may push Chinese policy makers to think twice about the current tariffs.
Downside limited, but be careful
As it appears now, Australia is once again in pole position to be the largest global exporter of barley with another large crop in 2022/23 heading our way albeit with some quality concerns in NSW due to excessive rain in recent weeks. This crop, if realised, will force us once again to be competitive in what is a high value global feed trade, still returning good farmgate values to growers. Risks to our prices are threefold; one is the near-record crop coming to the market at harvest – having this level of supply hit any market will make it tough to rally during that period of time. Secondly, downgraded quality feed wheat across the East Coast may weigh on barley prices as domestic feed users will be awash with cheap alternatives. Lastly, global demand is weakening, however hopefully a recovery is seen as we progress through 2023. Despite this, there is plenty to be optimistic about, including any notion of production hiccups globally next year given the tightness in global markets. If we were to see a supply issue, or a prolonging of the Ukraine/Russian conflict, demand would respond impressively, especially for Australian barley. As mentioned, volatility will again likely reign supreme.
Editor: Justin Stewart, Senior Commodity Adviser, Market Check