Barley bear was always there

Factors combine to bring out the 'barley bear'

Cropping
The bearish outlook for Australian barley prices was there even before China's announcement, rain leading to a reduced demand for barley as a supplementary livestock feed.

The bearish outlook for Australian barley prices was there even before China's announcement, rain leading to a reduced demand for barley as a supplementary livestock feed.

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China, COVID-19 and rain all combine to impact barley price prospects.

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Confirmation of China's 80.5 per cent tariff on Australian barley is top-of-mind for those growers who have finished or are still planting their 2020-21 crop, along with the question of who else will buy our barley.

This should have been contemplated before China's announcement earlier this month - because the 'barley bear' was always there.

The bearish outlook for Australian barley prices - from their still drought-driven highs - has been growing since rain started falling in many areas across the country earlier this year.

And the bear has continued to grow with more rain being received.

Rain not only means there will be more barley needing a market, but also that there is reduced supplementary livestock feed required.

Coupled with post-rain livestock re-building, which has seen producers increasingly holding back cattle from feedlots, this has led to less domestic demand for barley.

Contemplation about who is going to buy Australia's barley has now shifted to export markets.

Globally, the settings for a competitive market and lower prices were already in place. Barley stocks have been building and are now up by almost 30 per cent year-on-year.

Meanwhile, lower feed grain demand from China - due to its much smaller African Swine Fever-affected pig herd - was inevitable.

This has also been driven by China's commitment to buy more product from the US to comply with the Phase 1 Trade deal. So if China is looking to import feed grain, it is likely to favour US-origin.

Enter COVID-19 and the barley bear grew.

Less beer consumption has damaged malting barley demand, as big event and on-premises alcohol consumption has plummeted.

Travel restrictions have reduced demand for ethanol and, therefore, corn, and delivered cheaper feed corn prices to compete with barley.

Finding a keen buyer for Australian barley in 2020 has been getting harder - but wasn't ever going to be easy.

China's tariff is another, albeit fundamental, factor playing into a downward price trajectory.

Anti-dumping tariff precedents reveal that these can be in place from very short periods of time - such as the 178 per cent duty placed on US sorghum by China for just four weeks in 2018 - and stretch up to five years (in line with the World Trade Organisation (WTO) framework).

Formal appeals via the WTO take multiple years and, even when removed, the tariff - and preceding investigation - will weigh on Australia's barley trading relationship with China.

Finding alternative markets for Australian barley will be necessary to move this year's harvest and reduce risk into the future.

But that's easier said than done, as Black Sea barley and cheap corn will deliver competitive alternatives - and some feed grain markets are not in the practice of using barley.

Australian barley used for malting in China will be less easily replaced and given that China still imported 2.2 million tonnes from Australia during 2018-19 when our prices were at 10-year highs, the possibility of China coming to Australia for malting barley isn't off the table. Although, volumes will certainly be down this year.

Barley prices have so far been cushioned by the lower-trading Australian dollar.

Trading from 71US cents in January, to currently around 65US cents has been critical in keeping barley prices from further decline.

Rabobank still sees downside in the dollar over the remainder of 2020, which will be fundamental in supporting barley prices in this challenging export market.

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