17 July 2018 (Lagos ) : The just concluded barley season – 2017/20181 – ended in a deficit of 4.5MMT2 as production fell short of consumption. Precisely, relative to the previous season, consumption declined 2.6MMT over the season to 147.9MMT although, at a much slower pace when compared to a production decline of 3.7MMT to 143.4MMT. 

The drop-in consumption, reflected soft demand in Europe and Saudi Arabia despite high orders from China and Turkey. In the Euro area, higher prices in the Middle East relative to price in the Euro area strengthened export demand for European barley, leading to shortages of the commodity in the region. 

Consequently, consumers switched to other feed3 alternatives such as wheat and corn with an attendant negative impact on barley consumption (-1.4MMT). Over in Saudi Arabia where barley is mainly used for animal feed, weak demand (-1.0MMT) reflects increased consumer switch to cheaper processed animal feed products. To add, improved growing conditions allowed producers to graze their animals longer hence, further reducing barley consumption. On the supply side, the decline in production was majorly from Australia4, Ukraine and the United States (U.S.), where less favorable seasonal conditions impacted on output.

Over the next season, the USDA5 estimates barley production to rebound to 146.9MMT (+3.6MMT) while global consumption for the season remains unchanged at 147.8MMT. Broadly, the expected upturn in production is predicated on high yields, a combination of higher barley prices relative to substitutes, and stronger Chinese demand. 

Regions where higher production is expected include Australia, India, and Turkey. On consumption, high demand in China, Euro area and Turkey is expected to subsist in the next season although, not strong enough to offset slow consumption anticipated in Russia and Ukraine, hence, the muted consumption growth over 2018/2019 market year. Specifically, in Ukraine, the elevated price of barley relative to other feed ingredients is pushing animal producers to switch away from the commodity to wheat and corn. 

Overall, the estimated high supply and flat demand translates to a reduced deficit of 814KMT (vs. deficit of 4.5MMT in the prior season). Against the backdrop of higher production, analysts expect barley prices to moderate over the rest of the year. Reflecting the expectation of lower deficit, barley prices moderated 3.6% over H1 18.

Source: ARM Securities Limited

Reporting for EasyKobo on Tuesday, 17 July 2018 in Lagos, Nigeria

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