May 8 – How Will the Argentine Barley Crop Fare After Drought?

Argentina barley producers, while still recovering from a drought, are increasing their acres. What does that mean for the global barley market?

Argentine barley producers, while still recovering from seasonal drought, are increasing their barley acres to at least 2.22 million acres.

According to the most recent USDA attache report for the country, Argentine barley production in 2018/19 is estimated at a record 3.5 million tonnes, an 8% increase over 2017-18.

Multiple different factors are driving this increase in Argentine barley production. Both higher prices and strong barley demand, plus the removal of export tariffs, are incentivizing Argentine barley farmers to plant record amounts of cereal.

Recently, it’s been suggested that Argentine barley farmers sold 200,000 – 300,000 MT of barley into the market at an average price of $187 USD / MT (or $4.07 USD and $5.26 CAD per bushel) for new crop / post-harvest delivery in January 2019.

Malt processors and malt barley exporters are expected to propose attractive contract conditions in the upcoming weeks, which is an improvement and attractive to Argentine barley farmers relative to previous prices.

While drought and soil moisture levels remain a concern, the strong demand for both malt and feed barley in Argentina are allowing producers to feel confident that they will not face significant price decreases related to the quality of their crop.

The unusually dry and hot summer has negatively impacted corn and pasture production, so barley feed use is expected to increase as the livestock industry looks for alternate feed sources. 

The adoption of modern technology is also increasing Argentine barley yields. For example, many farmers have switched from the Scarlett seed variety to Andreia, a variety with better disease resistance and higher yields, and is expected to cover approximately 70% percent of the local barley area. The southeast region of Argentina, especially the excellent growing conditions of Buenos Aires, has adopted the new variety, likely attracted by growing futures prices. 

It is important to remember that barley production in 2018-19 is still going to be heavily dependent on whether or not soil moisture levels can recover to the levels needed for barley. After an extremely hot and dry summer, Argentine barley producers need consistent, significant rainfall in order for the soil moisture levels to rebound, especially in the southwest Buenos Aires province, which continues to experience significant drought.

On the export front, 2018/19 Argentine barley exports are projected at 2.2 million tonnes, similar to the previous year, broken down by 1.2 million of malt barley and 1 million of feed barley. Brazil and other South American countries are the main buyers of Argentine malt barley, whereas Middle Eastern countries, especially Saudi Arabia, buy feed barley from Argentina.

Given the size of exports and the expected crop, we’ll be watching the Argentine barley growing season a bit more closely over the next few months. 

 

Barley

Production: As with wheat, farmers are enthusiastic about planting barley in the coming season. Production is estimated at 3.5 million tons, 300,000 tons higher than MY 2017/18 on harvested area of at least 900,000 hectares. An advantage of barley over wheat is that producers sowing a second soybean crop are able to plant two weeks earlier, allowing higher potential yields. As in wheat, some barley areas need to replenish soil moisture before planting, especially in the southwest Buenos Aires province, that continues very dry.

Producers in southeast Buenos Aires province, where 40-45 percent of the country’s barley is produced, normally use high technology (with good levels of fertilization) to obtain high yields. Producers in the southwest Buenos Aires province typically use lower technology. With such a strong market for both malt and feed barley, producers feel they will not run the risk of getting significant price discounts if they do not meet malting quality levels as in past crops.

Local barley prices have recovered in the past months and, despite higher production costs, barley future returns are better than wheat. Nowadays, malt and feed barley futures prices are similar. Local brokers indicate that farmers recently sold some 200-300,000 tons of barley in the future’s market at an average price of $187 per ton for delivery in January 2019. Malting processors and malt barley exporters are expected to propose contract conditions in the next few weeks that most believe will be attractive to farmers.

Barley yields are showing a ongoing growth trend due to several factors. First, many farmers have switched from the Scarlett seed variety to Andreia, a variety with better disease resistance and higher yields that currently covers approximately 70 percent of the local barley area. In addition, barley production has slowly increased in the southeast region (vis-à-vis the southwest region) which has better growing conditions and farmers are no longer planting barley in the poorest lots of their farms as in the past.

Domestic consumption: Barley consumption for MY 2018/19 is forecast at 1.2 million tons, a marginal increase from the previous year. Demand by malting plants will be a little below 1.0 million tons, while seed use will be close to 100,000 tons. Barley feed use is expected to grow marginally at 125,000 tons by different livestock industries looking to substitute feed ingredients after the dry and hot summer which negatively impacted corn and pasture production.

Trade: Barley exports for MY 2018/19 are projected at 2.2 million tons, similar to the previous year. Local exporters indicate world demand for barley is strong due to tight supplies with rough export estimates of 1.2 million tons of malt barley and 1.0 million tons of feed barley. The main markets for malt barley are Brazil and other countries in South America, while the main destination for feed barley is the Middle East, led by Saudi Arabia.

H/T: USDA GAINs
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.