Barley is a crucial commodity in a range of industries, including food production, animal feed and, of course, brewing and distilling.
However, the price of barley doesn’t operate in isolation and is deeply influenced by broader global cereal markets, which includes other commodities such as wheat and corn.
In this blog, we provide some insight into how these markets function and highlight how, ultimately, barley prices and malt costs are very closely linked.
The global cereal markets: An overview
Cereal markets are highly interconnected because barley competes for the same agricultural resources as the likes of wheat and corn.
Any shift in dynamics or fluctuations can directly impact the price of barley, setting off a chain reaction through the malting industry and beyond.
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How global cereal markets affect barley pricing
There are several factors that affect the pricing of barley and the wider global cereal markets and here, we take a deeper dive into four of these.
1. The substitution effect
Barley competes with wheat and corn, especially in the animal feed market. When the prices of these cereals rise, buyers may turn to barley as a cheaper alternative.
For example, a drought in a major wheat-producing region may drive wheat prices up, leading to increased demand for barley.
On the other hand, when wheat or corn prices drop due to oversupply, barley becomes less competitive, so its price goes down.
2. Competition in production
Understandably, farmers take into consideration the allocation of their land for cropping based on the profitability of each crop.
So, if wheat or corn prices soar due to global demand, farmers may choose to sow those crops instead. This leads to a scarcity of barley which will drive prices higher, especially in regions where barley is already in limited production.
In England, the expansion of Sustainable Farming Incentives (SFIs) – a government scheme that pays farmers and land managers to adopt and maintain sustainable farming practices – may also affect farmers’ cropping decisions moving forward.
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3. Trade and export dynamics
Major barley-exporting countries like Canada and Australia also produce other cereals.
Global trade policies, tariffs, and geopolitical events that affect the export of the other cereal crops can influence barley prices. For instance, if a country restricts wheat exports, it might increase its barley exports to fill the gap. This alters global barley supply and prices.
From a geopolitical point of view, prior to the war between Russia and Ukraine, the latter accounted for around 10% of the world’s wheat exports. In the early months of the war, concerns rose about whether, firstly, Ukrainian farmers would be able to harvest their crops at all and, secondly, whether the harvested crops would be able to be exported. As a result, wheat prices – and consequently prices of other commodities, including barley – rose to, in most cases, record highs.
4. Climate and weather
Extreme weather conditions, such as droughts, floods, or unseasonal frosts, can drastically reduce crop yields, including barley.
When production is hit in key regions, global prices spike, impacting barley and other grains simultaneously. Climate volatility in major barley-producing regions can therefore drive-up barley costs and disrupt supply chains.
How does barley pricing affect malt costs?
Barley is the primary raw material used in malting across the world and is chosen due to favourable characteristics such as its high enzyme and starch content.
Because of this, it means that any fluctuations in the price of barley have a direct impact on malt prices.
Moving forward, as the global demand for cereals continues to grow, and climate and trade uncertainties persist, barley prices and malt costs will remain subject to frequent changes.