Scottish cereal growers face the prospect of drilling spring barley “on spec”, with no contracts on offer nor any indication of harvest prices for malting barley.
Many growers may opt to leave land fallow rather than drill “blind”, having incurred heavy losses on last year’s crop. Prices of around £80/t on the spot market and growing costs of £120-plus/t have left growers more than £40/t out of pocket.
Only Diageo has come out with a contract so far for this year’s harvest, but this closed on 15 January when the limited tonnage required was secured. Contracts were offered only to existing suppliers willing to sign up for three years, and limited to a small proportion of expected tonnage.
“Some growers are threatening to leave land fallow in the absence of any real commitment from malsters,” said Bryan Chalmers of Aberdeenshire-based consultants, Allathan Associates, who manages over 400ha (1000 acres) of spring barley for clients. “Alternatively, they may opt to grow oats, a green manure crop or re-seed into grass.”
Mr Chalmers welcomed the structure of the Diageo contract, which offered growers flexibility on the varieties to be grown and a measure of control over price. The contract gives growers a premium of £20/t over the November wheat futures price – the first time wheat has been used as the basis of a malting contract – and allows growers to lock-in at a time of their own choice, but before August 15.
“This gives growers the opportunity of fixing a price which meets production costs and leaves a margin for at least part of their crop,” said Mr Chalmers. The downside is that growers will have to make up the price shortfall if they fail to deliver and merchants have to close future contracts at a higher price.
Ian Keith of Frontier, who has filled his Diageo allocation, agreed it was “an excellent marketing tool”. “But we don’t recommend that they commit all their grain to a three year contract because we don’t know what costs farmers will face in years two and three.”
Diageo has the advantage of being distillers as well as maltsters and is expected to offer further contracts at some stage. But other maltsters, dependent on selling malt on to distillers, are holding back in the absence of any commitment from distillers.
‘Sowing spring barley’s hard to justify’
The malting barley acreage in Scotland reached a 20-year high last year following a surge in demand for malt in 2008, when Scotch whisky distillers enjoyed a record year and the opening of new malting plants.
With huge stocks overhanging the market, large areas of set-aside coming back into production, the prospects of increased imports from Ukraine and the absence of intervention for barley, SAC consultant, Julian Bell, says sowing spring barley this year is hard to justify.
“Prices look as if they could be £30/t higher at £115/t and costs will be less because of lower fertiliser prices,” he says. “But an average yield of 5.5t/ha will still result in a loss of £6/t. Growers should be looking to secure a contract which at least covers costs and leaves a margin.”