October 1, 2010

 

Tight barley supply forces up world grain prices

 

 

Limited global inventories of barley are pushing up demand for corn and contributing to increases in prices across the grains complex, according to traders and analysts.

 

A sharp fall in barley production in Europe and the Black Sea region is lifting demand for feed corn at a time when more of the grain is being used to make biofuels, pushing buyers from the Middle East to the US to lock in supply.

 

"There is limited supply of feed wheat and barley, and therefore demand for corn for use as animal feed has gone up," Abdolreza Abbassian, secretary of the United Nations Food and Agriculture Organisation's Intergovernmental Group for Grains, said.

 

"France and Germany suffered from terrible rains at the wrong time, which resulted in excess moisture and damaged the barley crop," Abbassian said.

 

Global barley production is likely to fall 14% in 2010-11 to 130 million tonnes, he said. FAO estimates are based on the aggregate of the different marketing and crop years of producing countries.

 

The Middle East, a major buyer of feed barley, is now substituting part of its needs due to the shortage - countries such as Saudi Arabia, Syria and Jordan are scrambling to purchase more corn.

 

"Corn is coming under pressure from all sides and not least from the lower barley availability in the market," according to a Singapore-based executive at a global trading company.

 

The US corn stocks-to-use ratio is at a multi-year low, with strong demand pushing prices to a two-year high despite ample supply with harvest ongoing.

 

Meanwhile, the USDA estimates that 2010-11 global corn consumption will rise by 10 million tonnes to 830 million tonnes.

 

Moreover, a sharp rise of 3.2 million-3.3 million tonnes in global biofuel production to 19.2 million tonnes is likely this year, Thomas Mielke, editor-in-chief of the Hamburg-based journal Oil World, said earlier this month.

 

Wheat and corn prices hit their highest levels in two years over the last two months after Russia banned exports of grains amid its worst drought ever, while feed barley prices also rose to multi-year highs above US$300/tonne last month. US No. 3 corn is currently being offered around US$230/tonne, free on board.

 

Average global barley prices are up 80% from a year earlier, with export prices of barley from France and Germany rising around 68% since mid-July to around US$269 a tonne, and Australia's malting barley prices up 54% in the last three months.

 

Abbassian said the entire grains complex is intertwined and although wheat prices have fallen below US$7.00/bushel recently, they may rebound in tandem with corn and barley prices.