Grain markets this morning are mixed on weather and demand fundamentals (which have fallen significantly for malt barley) ahead of tomorrow’s June WASDE report.
“Like a welcome summer rain, humor may suddenly cleanse and cool the earth, the air and you.” – Langston Hughes (American poet)
Malt Barley Demand & Rain vs June WASDE
Grain markets this morning are mixed on weather and demand fundamentals (which have fallen significantly for malt barley) ahead of tomorrow’s June WASDE report. In outside markets, U.S. stock markets continue sit near record-high levels on anticipation that the U.S. Federal Reserve will give any indication that they’ll bail out Wall Street again if there are further economic disruptions thanks to COVID-19.  Later today, we’ll get notes from their internal meetings but going into the report, average guesstimates are that the Fed will not take any additional action today regarding interest rates, further stimulus, or other market stabilizing mechanisms.
All of this is happening as bullish positions amongst options traders in the U.S. are they highest they’ve been in more than 20 years. This is usually a contrarian/negative indicator, as historically, markets have pulled back when this happens. However, the 40% recovery in the U.S. stock market over the last 3 months is entirely driven by monetary (read: central bank) and fiscal (read: government) stimulus. Put another way, the market has been artificially propped up and now, more than just I are feeling that things are a bit top heavy.
After all, the OECD is already expecting the global economy to drop by 6%, but that could be raised to nearly 8% if we see a second wave of COVID-19.  Breaking it down by country, they see the U.S. economy shrinking by more than 7% and the EU by 9%, including 11% contractions or worse in the U.K., France, and Italy. Does it seem logical that a stock market can be touching all-time highs when the economy is not growing, but declining?
Rain Matters for the June WASDE?
Monday’s crop progress report from the USDA continues to show some big production potential.  75% of the U.S. corn crop is rated good-to-excellent (G/E), while soybeans crop ratings were set at 72% G/E. These numbers both basically matched pre-report expectations, and specifically for corn, it’s well above the 59% G/E rating for corn seen at this time a year ago.
Warm weather and these crop conditions are putting pressure on the grain markets, but rain falling in the Midwest has been a bit heavy in many areas. It’s the same dynamic in parts of Western Canada as the Washington Post is suggesting that Tropical Storm Cristobal is expected to blanket major production areas through the end of this week.  Heavy winds have also been accompanying the rains, especially in the Midwest. 
On that note, going into tomorrow’s June WASDE report, it’s unlikely that the USDA will recognize any of these weather events. That said, questions about corn demand continue to be asked, but it’ll be interesting to see how the USDA considers wheat production in the Black Sea, the E.U., and Australia. For the latter, rain continues to fall on paddocks across the Land Down Undaa, which is obviously going to help production potential and therefore, likely wheat exports as well (something mentioned in Monday’s Breakfast Brief)
Malt Barley Looking for Demand
Barley prices have pulled back in both the feed and malt barley categories as demand has slumped, especially for the latter. With no concerts, festivals, or sporting events, beer consumption is certainly down, but there’s hope barley prices could improve as Asian economies that are re-starting will help purchase more malt barley.  Clearly, the main importer here would be China, especially since they’ve put an 80% tariff on Australian barley exports and banned some meat processors there from selling into the People’s Republic (which has obviously impacted feed and malt barley prices and meat prices).
On that note, Australian exporters are looking for new buyers for their barley, especially in the malt barley category, considering that they account for about 30% – 40% of the world’s malt barley exports.  For perspective, China bought 5.7 MMT of Australian barley in 2017/18, albeit that dipped in 2018/29 to 2.5 MMT due to lower production from the Land Down Undaa. Japan seems a healthy fit for Australia’s malt barley, but other markets like Vietnam, Indonesia, and Thailand could also be interested in buying more malt barley. The problem, however, is that most of the world’s other major importers of barley are looking for feed, not malt barley. For example, Saudi Arabia, the largest barley importer in the world, is buying mostly from EU and Black Sea options, which seem to be competitively priced to maintain their market share there. Also, we know Saudi Arabia isn’t buying any Canadian barley given the political spat between the 2 countries. 
Further, these other southeast Asian nations unlikely to make up for China’s demand for malt barley, and this will continue to weigh on not only Australian barley prices, but global barley prices. Yes, it’s easy to suggest that Canadian or U.S. barley prices will improve just because China doesn’t really have a better option right now to import from, now that they’ve effectively shut Australian barley out of the market. However, Chinese beer demand isn’t exactly back to normal levels either, best indicated by Budweiser’s Asia Pacific division’s 1Q2020 performance, which showed revenue falling by 39% year-over-year. Specific to China, their sales fell by as much as 45%.  Thus, it begs the question if China really needs the exact same amount of malt barley as it did just 6 or 9 months ago!
Bullish Malt Barley News?
However, it’s not all bearish as the dry, warm weather in Europe and the Black Sea is starting to appear in the production forecasts of government agencies and private firms. For example, France’s Ag Ministry is forecasting their winter barley crop will fall 12% year-over-year to 8.17 MMT mainly because of yields dropping due to the spring drought (especially in the northeast).  That said, because of the soggy fall, more farmers in France and other EU countries opted to plant spring barley, as acres were forecasted at 1.8M, up 14% year-over-year and nearly 50% higher than the five-year average.
Further, in the Ukraine, APK-Inform is estimating that barley production there will fall 23% year-over-year to 6.83 MMT, mainly because of a 16% drop in acres planted, including 27% less spring acres seeded.  Similarly, in Russia, consultancy firm Ozip is estimating production to fall 5% year-over-year to 19.45 MMT. As the Black Sea usually dominates the feed category, especially in the Middle East, it might open up some opportunities for additional Canadian feed barley exports. To date, total barley exports are tracking 12% lower year-over-year with just 1.79 MMT sailed through the end of May.
From a pricing standpoint, malt barley prices on our free Combyne Marketplace continue sit barely above $4 CAD/bushel in many places. Put simply, the market is telling us that there is significantly lower malt barley demand. On the flipside, for feed barley prices have traded sideways as buyers are purchasing hand-to-mouth until new crop supplies start hitting the market. That said, we know the spread between old and new crop barley prices will narrow heading into harvest, and so, if it’s old or new crop, get it Listed on Combyne for any of the 50 company barley buyers, or over 400 livestock producers looking for it.
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Due to some timing constraints, there are no grain markets futures data in today’s Breakfast Brief, but you can review them here at your convenience.
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