27 April 2023, France: The prospect of Australian barley returning to China after a three-year absence could push French barley sellers towards Spain, Algeria and Morocco for the new marketing year, while Argentina pins its hopes on winning back market share in Saudi Arabia and the Middle East.
Barley market participants expect shipments of Australian barley to China to resume from July onwards if negotiations between the two countries continue to make progress. Up for discussion are China’s 73.6pc anti-dumping tariff on Australian barley in place since May 2020, and Australia’s resulting complaint to the World Trade Organisation.
China has more often switched crops than origins to substitute Australian barley in the feed sector and combat rising global prices during 2022. China’s sorghum imports hit a multi-year high in May 2022 with large volumes of sorghum also arriving from Australia.
But lower US sorghum production — the US Department of Agriculture (USDA) estimates the crop at 4.77mn t in 2022-23, down from 11.34mn t the previous year — has led China to look elsewhere. Most recently, China bought up large volumes of French barley to almost clear the market of all remaining old-crop in February and March. French feed barley in late March traded at a premium to milling wheat on a cpt Rouen basis, as exporters sought to fill cargoes sold to China from dwindling local supplies of French 2022 crop.
That said, there is a short window in which China could continue to seek barley from non-Australian suppliers. Chinese traders expect Australian barley shipments to resume in earnest in October-November once the country’s harvest begins.
France looks to Spain, north Africa for new-crop
This could give France a three-month period in which to push new-crop sales, with little competition from elsewhere in the EU — as China has not yet approved German-origin barley for import. But further concessions on selling prices are needed to encourage China back to the market rather than waiting for Australian supply. International sellers offered Panamax-sized cargoes of French new-crop barley for July shipment to China at around $270/t fob, but this was substantially above buying ideas for July-September in the low-$240s/t fob.
French co-operatives are hoping that international exporters will look to French barley for their supply contracts to Spain, Morocco and Algeria this year. Severe drought conditions in Spain in recent weeks have already pushed Spanish importers to return to France for the last volumes of old-crop barley — of which very little remains — with bids at France’s southwestern port of La Pallice this week rising to only a slim discount to Euronext’s May futures contract. Spanish demand may therefore offer an outlet to French barley volumes, although the country’s feed industry could opt to replace barley with other products in its feed mix should barley prices become uncompetitive.
As for Morocco’s barley imports, recent reliance on German-origin barley to fill a deficit of supply from drought-hit Argentina could be short-lived. Morocco’s private-sector importers took in 110,000t of German barley in March, according to local port and silo data, making Germany the largest supplier so far this marketing year. As of the end of March, Morocco had imported 215,000t in total since the start of its local marketing year in June. But when new-crop volumes become available, France may compete with the German-origin given cheaper freight rates and a shorter route to north Africa.
Buyers seeking French new-crop barley cpt Rouen raised bids in basis terms to Euronext’s milling wheat futures contract by €2/t since 21 April. Cpt bids are now at a €22/t discount to September futures for July-September delivery to port.
Argentina’s next move unclear
In contrast to France, Argentina’s barley export routes outside China are less obvious.
Argentina could seek to regain the market share it used to hold in Saudi Arabia and the Middle East before 2020, some traders said. Around 20pc of Argentina’s barley exports were destined for Saudi Arabia on average in 2015-20, before Australian barley displaced Argentina in the Middle East as the former lost out on the Chinese market, At the same time, Argentina ramped up its shipments to China. But whether Argentinian sellers will succeed in regaining their place in the Middle East and in extending their reach to the wider Asian region remains to be seen, other traders said. Australia has cemented its place in these markets in 2022-23 as demand from Saudi Arabia, Japan and southeast Asia drove Australia’s monthly barley exports to a record high in December and February, even taking capacity away from the country’s wheat shipments.
Argentina also faces competition from French, German and Ukrainian barley sellers. German barley was priced at around $242/t on a fob basis for June-July shipment while France and Argentina were both priced around $270/t for July shipment — Ukrainian barley was last heard at $310/t on a cif basis to China. But once shipping is included, Argentina would be the least competitive owing to higher freight rates.
Argentina may get a slim window of opportunity to increase its export pace to China in the short term because of the extension of the country’s “agro-dollar” scheme to barley, allowing offers to fall to $260/t fob Necochea/Bahia Blanca ($311/t cfr China) on Tuesday, which had already attracted buyers back to their market.
Barley planting in Argentina will start in June so it is too early to peg expectations for the 2023-24 season and how it could compete with Australia directly in the new season. But with a shift to El Nino weather patterns, rains should return to Argentina, which could allow for better production in 2023-24, while Australia could return to drought.
In the meantime, Australia continues to dominate markets in the Middle East. As of the end of February, Australia had exported 3.15mn t of the 8mn t of exports projected by the USDA for 2022-23, customs data show. Preliminary data from Argus’ Australian vessel line-up suggest that monthly exports have since fallen from record levels above a million tonnes to around 810,000t in March and a similarly lower volume in April.
