Compounding impacts of successive years of drought, low soil moisture and little in crop rainfall further dented barley production, with one of the smallest crops in recent times harvested in 2019-20. This is on top of the recent decision by China to impose trade inhibitive levies of 80.5% to Australian barley exports, resulting in a sharp decline in domestic barley prices. These combined factors mean that barley output is estimated to be down 39% to $198 million in 2019-20.
New crop barley rose sharply on the back of improved conditions and plantings that were either already planned or sown prior to China’s levies being announced. Improved feed grain access to Indonesia offered some support, while many producers chose to retain barley on farm for livestock feeding or improved pricing conditions.
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Dry conditions had a big impact on barley production with a decline of 23% year on year to 696 thousand tonnes, the lowest level in 17 years. The decline was a combination of reduced acres and lower yields which averaged 1.2 tonnes/ha, at odds with other major winter crops where yields increased marginally. This is attributed to the incremental dry conditions that built up over successive seasons, depleting soil moisture and leaving farmers with little inclination to risk failed crops 10.
Domestic barley prices begun to detach from global feed grain prices in 2018 and remained elevated until recently, with drought related feed supply shortages in NSW and Queensland being the main domestic driver of barley prices. This period also coincided with a declining Australian dollar, adding further support to barley prices as any exportable surplus became more competitive in international markets.
These elevated prices remained in place until China’s recent decision to impose a combined levy of 80.5% on Australian barley imports coincided with the prospects of a large 2020-21 crop, resulting in a rebalancing of prices as a result. Barley prices ultimately closed in 2019-20 down approximately 32% on the previous year’s closing prices 72.
Australian exports of barley were estimated at 2.9 million tonnes in 2019-20 which represents a 22% decline year on year 94. The majority of these exports are traditionally derived from Western Australia and South Australia, and even more so in 2019-20 due to drought induced supply issues.
NSW remained a net importer of grain for livestock feeding and malting, however in comparison to the previous year, grain (including barley) predominantly came from Victoria and South Australia as opposed to Western Australia 82.
The major discussion point in the Australian barley industry was the conclusion of China’s Anti-Dumping and Counter Veiling Duties investigations in May 2020. As a result of these investigations and to the disappointment of barley producers, China’s Ministry of Commerce made the decision to levy anti-dumping and countervailing duties of 73.6% and 6.9% respectively on Australian grown barley for a period of five years. This effectively locks Australian barley producers out of this market.
With Australia being the largest exporter of barley to China, this will have flow on effects to Chinese customers, potentially in the form of higher prices or increased input costs to Chinese malting and feedlot industries.
Chinese barley demand will need to at least be partially met from alternate markets, creating opportunities for Australian exporters to potentially fill any demand displacement resulting from the decision, albeit possibly at a lower price point. The Middle East and in particular Saudi Arabia is the largest barley import destinations however, quality differentials, grain end use and freight scale efficiencies will mean Australian barley will need to be very price competitive to penetrate these markets.
Despite the market set back, barley growers are optimistic of a vastly increased crop with production forecast to increase 262% to 2.5 million tonnes in 2020-21, the largest crop in four years 10. The timing of China’s decisions meant many farmers had either already planted their 2020-21 crop or had their rotations planned with only limited last minute crop substitution forecast.
Barley prices are likely to remain subdued in the short to medium term as seasonal conditions improve and domestic supply and demand forces begin to take a leading role in price setting.
Some positive developments have come in the form of the recently ratified Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which paves out conditions for duty free access for 500 thousand tonnes of feed grain to be exported to Indonesia, with volume increasing by 5% annually 57. While this represents just 9% of Australia’s 5 year annual average barley exports to China, this may provide one possible outlet for exportable surplus.
Lower barley prices may entice modest increases in malt production for export markets, with malt not subject to the same Chinese levy’s on grain barley exports. However, what is likely to occur in the medium term is some level of structural adjustment of the grains industry to maximise farm output, with barley still playing an important role in crop rotations and marketing arrangements.