The two past barley crops and the one which is in the ground right now will all produce above average results with more than 155 million tons of barley. This is globally the highest production volume of barley ever recorded for three years in a row, as outlined by Brent Athill, managing partner at RMI Analytics during the RMI Analytic’s Swiss Virtual Summit this week.
In the last three years (including the crop expected this year), the combined barley production has been 10 million tons higher than in the preceding three years (crop 2016-18). The growth came mainly from the EU27+UK (+4.7m tons) along with Canada (+2.4m tons) and Russia (+2.1m tons). The growth/decline in Australia (+0.9m tons), Argentina (-0.1m tons) and Ukraine (-0.1m tons) are negligible in this context.
The additional barley production is especially important considering a worldwide growing demand for this grain which is expected to be about 157 million tons in the both crop years 2020 and 2021 respectively. The demand is about 11 million tons higher than the average demand from crop 2016-18 and shows the need for the increased production.
If one looks at the worldwide trade flows of barley, one can distinguish the situation in a time before and after the introduction of Chinese tariffs on Australian barley. In the past there was a truly loving relationship between Australia and China, with the majority of barley imports into China coming from Australia and the remainder being supplied by Canada, France and the Black Sea region.
In May 2020, as a result of an anti-dumping and countervailing duties investigation of China, the Asian superpower implemented a 80.5% import duty on Australian barley for an expected duration of 5 years. (inside.beer, 11.5.2020) This meant that China needed to replace nearly 4 million tons of Australian barley imports per year.
The new situation in China opened an opportunity for Argentinian barley. It is expected that about 1 million tons of barley of crop 2021 will flow into China. The remaining at least 3 million tons will need to be supplied in an even higher degree than in the past by Canada, France and the Black Sea region.
The higher demand from China has resulted in higher barley prices from all destinations with premiums up to 50% in comparison to pre-tariff levels. Canada remains to be the most expensive origin for barley followed by France and Argentina, both at about a similar level.
Australian barley which used to be the second most expensive barley in prior years has also appreciated but only to a lesser extend. Pricewise it has been overtaken by Argentina and France and is now traded at a discount of about 20% in comparison to the other growing areas. However, logistical reasons and import tariffs in other destinations limit the impact of this shift for the time being.
With China's barley tariffs primarily affecting China itself, some market observers believe that the current tariffs could be lowered or even abolished in a not too distant future.