E-Malt.com News article: World: Tight barley market may boost beer prices

“If U.S. breweries are talking about increasing beer prices to reflect a huge jump in barley costs, can Canada be far behind?” commented The Edmonton Journal on Thursday, February 01, 2007

A severe drought in Australia and production problems in Europe have sent barley prices soaring, and beer titan Anheuser-Busch, along with several smaller companies, are planning a price increase to recover the higher costs of raw materials, including the grain.

Brewers of Canada, an industry umbrella group, declined to comment on potential beer price increases or how much their costs have risen in recent months. But they have said the 2002 Western Canada drought, which decimated barley crops and caused big price increases, was a wake-up call.

They want to deal directly with producers to ensure an adequate supply, but that's not possible under the Canadian Wheat Board marketing monopoly.

Farmers can sell feed barley directly into certain local markets, but malting barley must be sold to the CWB, which in turn sells it onto end users.

In a recent report, the CWB said malting barley customers continue to buy hand to mouth because of the high global prices. "Tight Australian and European old crop malting barley stocks are expected to provide ample opportunities to take advantage of strong prices well into 2007," it added.

Neil Herbst, owner and brewmaster at Edmonton's Alley Kat brewery, said the prices he pays to Calgary's Canada Malting have not changed yet.

"We're still using last year's crop, so it could be a while. Barley is actually a very small part of our costs. Our glass costs, which are going up this spring, have a bigger impact," said Herbst, who has just released a Scotch ale that is heavy on barley.

A former farmer who still grows a small amount of feed barley, Herbst believes the marketing system needs to change. "I grew some feed barley last year and sold when it was within 20 cents of malt and got cash on the barrel. You can't do that with malt barley."

Phil de Kempe, executive director of the Malting Industry Association of Canada, said his group did not want to comment during the barley producer plebiscite to decide whether the CWB monopoly should continue. Ballots were mailed out Wednesday, with a March 6 deadline for returns.

Charlie Pearson, a crop marketing analyst with Alberta Agriculture, said he's hearing that the maltsters -- there are two plants in Alberta -- want to deal directly with farmers. "They want a more direct relationship with producers so they can send the market signals over to them."

Under the current system, farmers do forward contracts with the CWB for malt barley, which are normally settled in August and September.

Most farmers are happy to fulfil their contracts, but there needs to be a way the malting companies can signal to producers they need more grain and are willing to pay the current market price, Pearson said.

The CWB says its Producer Direct Sale program allows farmers to take advantage of marketing opportunities they identify on their own, without undercutting each other and destroying the power of the single desk. The CWB quotes what it is getting in a particular market on a given day (known as the cash price), and farmers pay this price to the pool. The CWB then pays the farmer the initial payment, and over time will pay the total value of the grain received by all farmers in the pool.

The result is farmers can earn the pool price, plus the additional premium they are able to negotiate with a buyer, the wheat board maintains. Mike Leslie, general manager of the Alberta Barley Commission, said feed barley prices, traditionally lower than malt barley, are now almost on par because of the global shortage. "Prices have doubled in the past year because of the Australia drought, and that's pulling malt growers into feed barley."

Malt barley is more difficult to grow because of the high standards demanded by brewers, especially in the lower protein content.

It makes up about 40 per cent of Alberta's barley crop, but only 10 per cent is good enough to go to the malting plants, Leslie said.

With most of it ending up as feed anyway, farmers increasingly are reluctant to nurse it through the growing stages, he said.

The ABC, which represents the Alberta farmers who produce about five million tonnes of barley a year, is looking at ways to improve the quality.

Among other things, they are testing a Near Infrared scanning system that helps predict the end quality while the barley is still in its early growing stages, Leslie said.

Jeff Nielsen, whose Olds farm has been in the family since 1930, said there is a certain pride in being able to grow good malt. "We can grow a lot of malt barley in Alberta if the market is right.

"Some varieties are exceptional yielders."

Producers would like to build individual relationships with maltsters and brewers, but they can't under the current Canadian Wheat Board system, said Nielsen, who grows both feed and malt varieties.

Under the CWB, farmers get a portion of the pool price initially, and another payment later, which makes for uncertainty in financial planning, said Nielsen, president of the Western Barley Growers Association.

The Coors brewing company in the U.S., for example, is strict about what they are looking for in a malt product, but good contracts make it worthwhile for the farmer, he said.

"I'd love to have something like that. It helps your financial planning and you don't need your hand held."

Nielsen is confident barley producers will increase production to supply such current end users as cattle feedlots and milling companies, as well as new entrants such as biofuel plants.

"We are entering a new era of growth and value-added here in the west. With the growth in biofuels, producers will see many advantages to improve their farm incomes."

Because U.S. barley prices are higher than Canada, feedlots and biofuel processors will still enjoy a competitive advantage, Nielsen said.

dfinlayson@thejournal.canwest.com

BARLEY FACTS

- Alberta is Canada's largest barley-growing province with about 44 per cent of production.

- Alberta produced 4.6 million tonnes of barley last year, down 18 per cent over 2005 on a five-per-cent smaller seeded area, and down 15 per cent on the 10-year average.

- About two million tonnes is malting barley, half of which is used within the province.

- Canada is the world's second largest exporter of barley malt, with sales of more than 500,000 tonnes a year valued at more than $200 million.


02 February, 2007