By Angus Brown | Source: ASX, Mecardo
The dry weather continues to drive grain prices higher, and while barley has been priced well in a relative sense since harvest, last week it broke through a resistance level which has been in place for nearly 10 years. This week we look at the barley market and assess if we’re likely to see it back at affordable levels any time soon.
In January 2017 ASX Feed Barley futures hit an 8 year low and weren’t far off a 12 year low. Over the course of the past 18 months Feed Barley prices have doubled, with the last rally seeing 30% added.
ASX Feed Barley (Figure 1) has broken through resistance at $300/t to finish Monday at $305/t. Strong demand, tighter supply, rallying international prices and continued dry weather have forced feed barley prices from the doldrums of early 2017 to near 10 year high.
After the bumper crop of 2016-17, Australian barley production fell 5 million tonnes to a five year low. The Australian Bureau of Agricultural Economics Resources and Sciences (ABARES) have forecast that 4 million hectares will go into barley this year, a small increase, to produce 9 million tonnes of grain.
A 13% increase in barley production seems fanciful now, but we only have to go back to 2005 to find a year when the ‘autumn’ break arrived in June. In 2005/06 an extremely dry first half of the year was followed by a very good second half, and barley yields of 2.15t/ha.
We have to note, however, that the latest three-month outlook from the Bureau of Meteorology (BOM) doesn’t bode well for the production of an average crop, let alone above average yields.
So how high can barley go? In general grain prices can only go as high as the cost of importing grain from overseas. Corn is an alternative feed grain, and while parts of the US are dry, corn prices are still only $US160/t, or $213AUD/t. In 2006 and 2007 feed barley reached premiums to corn of $200/t, but it quickly declined to levels of around $100/t when the threat of grain imports appeared.
Shipping freight rates obviously have a big impact on how much it costs to import grain, and thereby the limit of price rises for feed grain. We probably haven’t reached that point yet for barley prices in the south, but in Southern Queensland they are not far away. A dry winter and a small crop in Victoria and NSW could see barley gain another $50-80/t, but if it does without international prices rising it will be a clear sell signal.
On the downside, time is running out for a big rain to kick off the potential for an average crop, and a decline in prices. There is up to $50 downside if conditions do improve, but first, we’ll have to see some rain on the forecast and have it actually appear.
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