Archive Article: 1997/07/19

19 July 1997

An unpleasant surprise awaits malting barley growers who think they can sell their crops using the same strategies and on the same basis as in previous years.

Merchants have, for the most part, drastically revised the basis on which they intend to trade 1997 crops. They have little desire to purchase at harvest, take into store or pay a malting premium on winter malting barley.

The lucky farmers are those with fixed price contracts, giving harvest movement linked to guaranteed premiums for specific quality. However, the majority of growers either have no contract at all, or have taken out price to be agreed contracts.

In the past, contracts based on feed price plus quality premiums, have suited farmers and merchants well. Growers have achieved rapid harvest movement, freeing up farm stores in time for the wheat harvest.

They have also sold their barley early in the marketing year – for feed price plus premiums linked to the malting quality – giving cash flow benefits to the business.

The merchants have happily gone down the route of purchasing the crop, stuffing their stores full of malting barley, then drying and storing it ready for sale.

Eventually, the maltsters would purchase barley from them, enabling the merchants to make a good profit for themselves in the process. Generally, everyone was happy: grower, merchant and maltster.

Last year

The system broke down in 1996/97. Growers escaped unscathed, but practically all the bulking merchants (those who speculatively purchase) and sales maltsters (those who process malt to sell on as a commodity) lost money.

As a result, profits fell, losses were incurred, questions were asked and heads rolled.

At the start of harvest, malting barley traded as normal, with large tonnages entering merchants and maltsters stores at excellent malting barley prices to growers.

Then, in August, the cereal prices started to slide, taking the malting barley market down with it.

As the year progressed, sterling continued to strengthen, further depressing prices and hitting the malting industry hard as the value of its malt dropped.

Sales maltsters usually purchase 50% of their barley requirements by the end of October, often securing considerable supplies at harvest, then purchasing the rest at the end of the year.

As prices fell, maltsters were left holding expensive stocks of malting barley costed at more than £25 per tonne above the market price. UK maltsters then had to try and sell this overpriced malt into a highly competitive world market.

Disaster resulted for many maltsters, who decided in future years they must always buy their raw materials competitively. They favoured schemes similar to those used by their competitors in France, Australia and Canada, where malting premiums are only paid on malting barley when the malt is finally sold.

All those handling malting barley this year are determined to protect themselves against a recurrence of the 1996/97 trading pattern. As a result, everyone is trying to reduce the risk they carry, pushing it along the supply chain, back to the grower.

Maltsters intend to cut out carrying large stocks and delay purchase as long as possible, according to Robin Pirie, grain director of Pauls Malt, purchasers of a third of the UK malting barley crop.

Ideally, premiums would not be paid on the malting barley until the malt is actually sold.

At the same time, merchants do not want the risk of buying stocks that the maltsters will make no commitment to purchase.

Consequently, they do not want to buy malting barley from growers, until they have a guaranteed sale themselves.

Allied Grain recently wrote to its growers explaining it may well be unable to offer firm barley prices at harvest on price to be agreed contracts.


Instead, they are prepared to pay growers the feed price, then charge them £1.50/t handling charge into store and 15p/t per week storage, until such time as the grain is actually sold for malting and a premium paid.

Nor is Allied Grain alone in taking this action. Other major merchants, such as Dalgety Seamans plan similar arrangements.

Those growers who have contracts with merchants should look at them carefully to see what deal has actually been agreed. The risks in what happens in the malting market is being placed firmly on growers shoulders.

As well as the protect my back attitude of the merchants and maltsters, three other factors are likely to depress the malting barley market this harvest.

First, the slow uptake of malt over the last 12 months, caused by uncompetitive UK prices and a poor international market, means maltsters are still carrying large carryover stocks from the 1996 harvest.

"You cant sell malt for love nor money," says Michael Gutsell of maltsters Hugh Baird & Sons.

Second, the newer higher yielding varieties have encouraged more malting barley to be grown, yet the winter malting barley market is oversupplied.

With a potential malting harvest of four million tonnes, the three new varieties, Fanfare, Regina and Gleam, are expected to yield one million tonnes, yet the total demand for all malting barley is only around two million tonnes for both home use and export.

Third, the strong pound makes exporting more difficult. UK grain is uncompetitive. Considerable price discounting has to occur to balance the currency changes.

While the pound remains strong, the malting market is likely to remain depressed for the UK.

Oversupply means much of the malting barley may not find a premium this year.


Although Pipkin and Halcyon should be in demand, a percentage of the newer varieties will not be wanted. For instance, Fanfare is expected to yield 500,000 tonnes, four times more than the likely market demand.

Growers will have to decide whether to sell for feed prices, currently £70/t for harvest movement, or whether to store their grain, hoping that more and better premiums will materialise later in the year when the maltsters have a requirement for this years crop of barley.

Those who store must decide whether to do it themselves, or whether to take up the storage being offered by the merchants.

Growers must forget the way malting barley has been traded in previous years. This year, the risk is back with the growers. It could be a painful experience.

Enthusiasm for malting barley is in danger of sinking to an all-time low. Marie Skinner looks for some pointers to

future prospects.

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