Barley usage to remain strong next season: Analyst's Insight

• UK feed wheat futures (Nov-21) continued their pause yesterday, falling £2.10/t, to £183.50/t. The last two days of falls follows a run of gains which saw the contract up £11.55/t between Monday 26 July and Monday 2 August.
• Markets have gained on global wheat crop pessimism, with dryness impact North America and shrinking crop forecasts in Russia. However, markets need a constant flow of information to keep moving higher.
• Attention will turn to next weeks crop condition reports from the US and Canada, as well as the USDA supply and demand estimates (WASDE) due next Thursday.

This morning, full season usage statistics were published for both animal feed (including integrated poultry units) and the human and industrial sector. It is no surprise that usage of wheat was down across the board, echoing the estimates of the AHDB balance sheets.

Full season usage of wheat in animal feed production was the lowest since 2007/08, at 4.12Mt. But this masks the true drop in wheat usage. Between 2007/08 and 2020/21 usage of cereal ingredients[1] in animal feed production has grown by 1.48Mt. Looking at wheat as a percentage of cereal ingredients, shows that usage was the lowest on digital record at 53.8% of the ration.

Unsurprisingly, much of the wheat use was displaced by barley. Barley, as a proportion of the diet, was 40.7% year on year, making up 23.7% of cereal ingredients. This was driven by the huge discount of barley to wheat. Across the 2020/21 season, ex-farm feed barley (spot, UK) averaged a £44.30/t discount to feed wheat.

While the relationship is far from perfect, we can use both usage data and ex-farm prices to look ahead to what we might see in the coming season. We are expecting a more balanced availability of wheat and barley in 2021/22, compared to last season. In turn, we are expecting a “healthy” discount of barley to wheat.

Through July, ex-farm feed barley, for delivery in September averaged £22.82/t discount to feed wheat. Historically, this would suggest that barley is still likely to make up a reasonable proportion of the animal feed ration next season (c.15-16%). If usage of cereals in animal feed continues its current path, usage of barley in compound and IPU rations could reach c. 1.16 – 1.24Mt next season. 

Of course, there are more things than price which determine usage. But the incentive to use barley certainly seems to remain.

[1] Wheat, barley, oats, whole and flaked maize, wheat feed and maize gluten feed.

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