Changes in the Barley Market
Posted on 05/31/2012 at 12:00 AM by Christa Hartsook
Blog article written by Gary W. Brester, professor of Agricultural Economics, Montana State University and AgMRC contributing writer.
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 one of the most highly adapted cereal grains with production occurring in climates ranging from sub-Arctic to subtropical. 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.
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 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.
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 and malted alcoholic beverages.
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.
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.
The price of all barley in 2011 averaged $4.78/bushel which resulted in a crop value of $745.1 million. However, malting barley generally commands substantial price premiums over feed barley especially when produced under contractual arrangements. 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.
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, an oil that can lower cholesterol levels. These high-fiber barley varieties may have important health benefits.
The challenge for the barley industry will be to compete production acres away from corn and soybeans to meet malting and other value-added needs.