Farm Tender

Mecardo Analysis - Saudi Arabia, China, Pigs and Chooks

By Andrew Whitelaw | Source: Mecardo.

The barley market has been very intriguing in recent years. In this update, we look at Saudi Arabian demand, Chinese Anti-dumping investigations and the value of barley to Australian consumers.

In mid-November, China launched an investigation into allegations of Australia ‘dumping’ barley in an uncompetitive manner. In 2018, an investigation into US Sorghum dumping led to a 178% bond, this resulted in Australian sorghum becoming more competitive. However, a month later China removed the requirement to pay a bond.

The concerns about the ramifications of the investigation caused barley prices to drop dramatically (Figure 1). However, there were other reasons, partly barley was considered by many domestic consumers to be too expensive, which lead to it being removed from many rations.

Barley is nutritionally inferior to wheat and typically will trade at a discount. In Figure 2, the spread between wheat and barley is shown since 1985 in both nominal dollars and percentage.  

2019-02-19 Wheat 2 2019-02-19 Wheat 3

Anecdotally consumers in the Chicken and Pig space point to a preferred barley discount of A$30/mt, any higher than this and minimal volumes of barley will be utilized. In the period prior to harvest, the spread to barley became nutritionally too expensive at levels close to parity.

However, the fall at the start of harvest resulted in barley being attractive to add back into the ration. The current spread between wheat and barley is A$35-45/mt, bringing barley back into the ration.

In table 1 the average spread for several different time ranges is shown in both percentage and A$/mt. The average discount has been increasing since the turn of the century in A$ terms, however, in percentage terms, the average discount has largely remained close to the long-term average of 10%.

2019-02-19 Wheat 1

Key points
   * The discount spread of Barley to wheat dictates it’s utilization by Chicken and Pig consumers.
   * The current spread of A$35-45/mt is seeing increased Barley usage by feeders on the east coast.
   * Anti-dumping investigations by China and the substitution of barley in Saudi Arabia could impact the west coast.


What does this mean?
The main export markets for Australian barley are Saudi Arabia and China.

China: The anti-competitive dumping investigation is placing fear in the hearts of traders. Do they sell barley and risk being hit with a penalty?

Saudi Arabia: As we regularly mention, most grain and oilseeds can be substituted. This is especially the case with Barley. In many countries, cheap corn can substitute barley, but also pasture has an impact. There has been beneficial rainfall which has reduced import demand by around 10-14%.  

The barley market on the east coast has found a floor in the domestic market and will see increased usage by feeders, albeit whilst discounts remain.

However, anti-dumping investigations and substitution of barley could have a larger impact on the west coast.