By Mykel Taylor and Michael Boland, Kansas State University; and Gary Brester, Montana State University; October 2005.
Revised April 2012 by Gary Brester, professor, Department of Agricultural Economics, Montana State University, firstname.lastname@example.org
Barley is a short-season, early maturing crop and is likely the world’s oldest cultivated grain. It is produced in a variety of climates in both irrigated and dryland production areas. Barley is the third largest feed grain crop produced in the United States after corn and sorghum.
U.S. producers harvested 2.24 million acres of barley in 2011 with an average yield of 69.6 bushels/acre. Total production was 155.8 million bushels, which was the smallest annual production level since 1936 and approximately one-half of the 2000 production level. Much of this decline can be attributed to increases in corn production in northern climates that have historically produced barley. The advent of shorter-season corn varieties, coupled with record corn prices, has caused production substitutions away from barley towards corn.
Barley prices in 2011 averaged $4.58/bushel, which resulted in a crop value of $745.1 million. Between 1990 and 2011, the simple correlation coefficient between monthly corn and barley prices was 0.90.
Barley is used for livestock feed, human food, and malt production. Each of these uses is best met with specific barley varieties. About three-quarters of barley production is used for food/malt purposes, and the remainder is used as animal feed. Some barley varieties are better suited for feed and others for malting purposes. High-quality feed barley contains high protein levels and test weights, while low protein levels and plumpness are necessary for malting purposes. However, some varieties can be used for either purpose and, in many cases, their use depends upon agronomic situations.
Barley competes with corn and sorghum as a feed grain. It has higher protein contents than corn, which reduces the need for protein supplements in feed rations. However, it lacks some of the other nutritional elements present in corn. In general, feed barley prices are approximately 85% of corn prices on a per bushel basis.
Barley grown for human consumption is used in soups, as an extender for vegetable proteins and is occasionally milled into flour. In general, hull-less or pearl barley varieties are used for food purposes. Barley flour is used in the United States in baby food and in North Africa and Asia for flatbreads or porridges. Barley-produced malt is also widely used in the food industry in baked goods and flavorings.
In general, specific varieties of barley are used to produce malt. Some malt is produced by companies that specialize in its production. Most malt is used for brewing beer. In addition, some beer manufacturing companies have developed integrated production systems in which they contract with farmers to produce specific (and sometimes proprietary) barley varieties. The identities of these varieties are preserved as they move through brewers’ own malting facilities and into the brewing process.
Barley varieties are classified as either six-row or two-row depending on the physical arrangement of the kernels on the plant. Barley is also described as hulled or hull-less by the presence of beards, or awns, covering the kernels. Six-row barley is grown primarily in North Dakota, Minnesota, South Dakota, and Idaho. Two-row barley is grown in Montana, Idaho, Colorado, Wyoming, Washington, Oregon, and California.
Barley is one of the most highly adapted cereal grains with production occurring in climates ranging from sub-Arctic to subtropical. Because of its use in malt production, barley is grown in many areas of the world for cultural as well as economic reasons. The United States is the world’s seventh largest producer of barley. The European Union-27 (EU-27) is, by far, the largest producer with a 41% market share. Russia and Ukraine produce 12% and 8%, respectively.
In 2011, the top three barley-producing states were Idaho (46.5 million bushels), Montana (31 million bushels) and North Dakota (16.5 million bushels). Prior to 2009, North Dakota was the largest producer. However, weather events, disease problems and competition for agricultural land from corn and soybean production has reduced North Dakota’s barley crop over the past several years.
Some malting and brewing companies develop and contract for the production of specific barley varieties. Contract production offers malting companies a secure supply of high-quality barley and, in some cases, specific varieties. Such contracts offer price premiums over higher-yielding feed barley. These premiums are necessary to offset lower yields, higher production costs, and added weather risks.
Malting companies contract for both two-row and six-row barley varieties. Some contracts are specific to certain varieties, as well as quality requirements. The preference for two-row or six-row barley stems from several factors including brewing techniques, price, and style or flavor of the finished product.
Most contracts have very specific quality requirements. Requirements are often specified for maximum allowable protein contents, moisture, foreign material, skinned and broken kernels, and sprout damage. Minimum requirements are set for factors such as color and kernel plumpness. Sampling and grading occur for every truck load brought to receiving stations. Stringent tests for the presence of diseases, such as fusarium head blight, are often conducted. Most of these characteristics directly affect brewing processes. Malting barley that does not meet quality specifications is sold in the feed market at significant price discounts relative to feed barley because of lower test weights and protein contents.
The price of all barley in 2011 averaged $4.78/bushel, which resulted in a crop value of $745.1 million. However, malting barley commands substantial price premiums over feed barley. The price of malting barley is largely determined by the supply of malt in both the domestic and world markets and by the demand for malt and malt products. Increasingly, however, malting barley prices are influenced by spring wheat and corn prices, as these represent viable production substitutes – especially in irrigated cropping regions.
In 2011, feed barley prices averaged $4.58/bushel, and open-market malting barley prices averaged $4.81/bushel. This $0.23/bushel difference represents only a 5% premium. However, many malting barley contracts for specific varieties carry a $1.00/bushel or higher premium. Nonetheless, open-market malting barley premiums over feed barley are much smaller than a decade ago. For example, between 1995 and 2005, the premium for open-market malting barley over feed barley averaged $0.70/bushel. Given that the feed barley prices averaged $2.01/bushel over this period, the premium represented a 35% increase over feed barley prices.
When barley is used to produce malt, it is first steeped in water under controlled conditions and allowed to sprout. It is then dried or roasted in a kiln, cleaned and stored.
Beer is considered a mature product so that growth is primarily the result of increases in population. The beer industry uses shipments as a proxy for consumption. In 2011, shipments totaled 204.9 million barrels, which was a 1.5% decrease from 2010 levels and the lowest since 2003. Per capita consumption has decreased since the early 1980s. This may be an indication of the effectiveness of public policy and private sector initiatives encouraging moderation and personal responsibility regarding alcohol consumption. In addition, changing U.S. age demographics may be partially responsible.
Increased consumer demand for microbrews has increased the number of small breweries in the United States to more than 1,800 (seven times the number in 1990). Beer imports have grown consistently over the past decade and represented 13.2% of the U.S. market in 2011. U.S. brewers are increasing foreign shipments through licensing agreements and joint ventures with foreign brewers.
Following corn, barley is the second largest feed grain traded internationally. The United States is a minor player in world barley trade, although it is in the top 10 of exporters in terms of volume. However, barley exports have consistently declined over the past 5 years which reflects lower U.S. production.
The United States exported a small amount of malting barley to Canada and Mexico in 2011 (about 40,000 tons to each). U.S. feed barley export markets included Tunisia (80,000 tons), Morocco (14,500 tons), and Japan (13,000 tons). Until 3 years ago, Japan was the dominant export market for U.S. feed barley.
U.S. barley imports have declined by double digit amounts over the past several years. Almost all 2011malting barley imports (210,000 tons) and feed barley imports (37,000 tons) originated in Canada. North Africa and the Middle East regions are the world’s largest barley importing areas. China is likely to become the world’s largest importer of malting barley in the next 10 years. An increasing percentage of world barley trade is in the form of processed malt.
Value Added Opportunities
The primary value-added barley opportunities will remain in the production of malting barley. However, there is increasing interest in the use of certain barley varieties for human nutrition purposes. Some barley varieties genetically produce waxy starch which is almost 100% amylopectin. The combination of hull-less barley and this waxy starch characteristic produces barley that is high in soluble dietary fiber and, especially, beta-glucan. Beta-glucan is also present in oats and has been shown to lower serum cholesterol. Arabinoxylan or pentosans are also found in barley and constitute about one-half of its soluble fiber. Barley also contains tocotrienol which is an oil that can lower cholesterol levels. These high-fiber barley varieties may have important health benefits.
Barley production in the EU-27 is expected to increase as a consequence of high world prices. Thus, the EU-27 could become an even more important barley exporter.
The primary competitive pressure on U.S. barley production continues to be relatively high prices for corn and spring wheat. Barley is a feed substitute for corn. Hence, higher corn prices have increased the price of feed barley. In addition, the supply of barley continues to decline as crop producers move acreage away from barley production and into corn production. Much of this movement is the result of increased corn production profitability, as a result of ethanol policies and the advent of high-yielding, short-season corn varieties. Many traditional barley producing areas are able to profitably produce corn. In addition, spring wheat and barley are production substitutes because agronomic practices and land requirements are similar for both crops. Thus, higher spring wheat prices increased competitive pressures on the production of barley.
The malting barley industry will continue to be affected by these developments. That is, upward pressure on feed barley, corn and spring wheat prices will limit malting barley production. Open-market malting barley premiums over feed barley are much smaller today than just a few years ago. Given that the brewing industry has faced downward consumption trends in recent years, profit margins are being squeezed. Nonetheless, malting barley is currently necessary for beer production. Hence, it is reasonable to assume that malting barley processors will need to increase malting barley premiums in the near future.
Barley, U.S. Grains Council.
Beer Institute Online
Crop Production, Annual Summary, National Ag Statistics Service (NASS), USDA.
Crop Values, Annual Summary, NASS, USDA.
Feed Grains Data Yearbook, ERS, USDA.
Global Agricultural Trade System (GATS), Foreign Ag Service (FAS), USDA.
Idaho Barley Commission
The Montana Wheat and Barley Committee
Links checked November 2013.