Global Markets: Coarse Grain – Feed Barley’s Price Gap With Corn Shrinks Dramatically

World barley production in 2019/20 is projected to be the highest since 1994/1995. As a result, exportable supplies of barley are plentiful across the globe. USDA forecasts world exports of barley in 2019/20 at 28.0 million tons, a 9 percent increase over last year and the third-highest on record.

The world’s major exporters of barley (Argentina, Australia, the European Union, Russia, and Ukraine) comprise 83 percent of this trade. As supply has expanded, barley is also seeing weaker global demand in the shorter term. Barley trade to both China and Saudi Arabia – the world’s top two importers – is down relative to the combined high of 18.1 million tons in 2014/15.

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Ample supply and flagging demand from major buyers have had a collective weakening effect on feed barley prices. In the past year, the price gap between barley and corn has narrowed from over $80/ton in September 2018 to nearly $20/ton by October 2019.

Corn has seen its own price effects, driven by market uncertainty over U.S. crop size and weather premiums between May and August. The two grains nearly reached price parity in July but recovering market sentiments eased corn back down in the following months.

In a world where exporters are seemingly fighting tooth and nail to get their corn into the hands of global customers, barley traders may continue to have difficulty finding alternative markets despite the increasing competitiveness and abundant availability of feed barley.

China’s Exports for Corn Starch and Starch Residues are Robust

China has again become a leading exporter of corn starch. The growth has coincided with its policy changes – the removal of support prices and adoption of measures to boost corn use. China has ample wet-milling5 capacity established years ago when the government singled out corn processing as a key industry and stressed developments of value-added supply chains.

Supports from the central and provincial governments in the form of discounted sales, subsidies on transportation, and VAT refunds have encouraged processing of corn. Likewise, exports of starch residues6 have also grown, and China has become the second-largest supplier after the United States. Corn starch is widely used for food manufacturing, textiles, and numerous industrial purposes. Residues of starch have relatively high protein contents, thus are used as a protein source in feed rations as well as in pet foods.

Major destinations for China’s exports have been neighboring countries. For corn starch, Indonesia, Malaysia, the Philippines, and Vietnam have been the leading markets. For residues of starch, virtually all exports have been destined to just three countries – South Korea, Vietnam, and Japan.

China’s corn exports have not been competitive over a decade because domestic prices have remained higher than world levels. However, China is well positioned for exports of the highvalue corn-based products with surplus corn, ample processing capacity, supportive policies, and nearby markets that have growing demand.

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