World: Barley shortage to sharpen

World barley supplies are forecasted to fall to an 11-year-low by July, Barron's Online reported April 7.

"The market is totally dry of barley," Heineken's CEO Jean-Francois van Boxmeer said in late February, when the company released its yearly results. The shortage has pushed European Union malting-barley cash-market prices up 80% in the past 12 months. Prices also jumped in other major producing nations, including the U.S., Canada and Australia.

With global weather patterns becoming more volatile, droughts may increase, industry experts say. Additionally, the greater focus on biofuels to curb auto emissions is leading to a competition for cultivable land, including area seeded for malting barley. A severe drought slashed Australia's 2006 harvest by 60%, and amid President Bush's biofuel push, U.S. barley acreage harvested last year sank to its lowest level since 1885.

Steve Edwardson, executive director of the North Dakota Barley Council, says that corn and soybeans are pushing into traditional barley-growing areas due to attractive prices and improved, northern growing-zone versions of the crops. North Dakota is the largest barley-producing state, with up to 90% of its crop targeted for malt. Rising demand for biofuels crops gives EU farmers more planting choices, says Marieke de Rijke, barley analyst with Netherlands-based Rabobank. "It's a structural shift," de Rijke adds.

Price pressures have "added to our overall cost of goods in the U.S.," says Kabira Hatland, spokeswoman for Molson Coors Brewing (TAP). However, Hatland adds that long-term supply arrangements with farmers means Coors is less vulnerable to U.S. barley prices swings.

When Carlsberg released its results, chief executive Nils Andersen said he didn't think the higher prices were a trend and that the crop problems seen in 2006 probably wouldn't recur in 2007. Even though Anderson considers global warming to be a threat in general, he expects a more normal summer this year. "Then, the prices will go down," he says.

French agricultural analytical firm Strategie Grains says world barley output could rebound by 10 million tons in the coming season. EU barley fields are in good condition, but Rabobank's de Rijke notes this also was the case last season -- until summer heat zapped EU production.

Analysts say that, even with favorable weather, it will take about 1 1½ to 2 seasons to rebuild the extremely tight world supplies.

Raw materials account for about 20% of total costs for Heineken. Barley currently accounts for 6% of a beer's sale price, while packaging accounts for about 14%, according to Netherlands-based analyst Gerard Rijk at ING Barings.

With the costs of aluminum, glass and energy also on the rise, Rijk says brewers will need to raise beer prices 1.5% to 2% in the coming year. Obviously, consumers won't be toasting that possibility.

11 April, 2007