E-Malt.com News article: USA: Anheuser-Busch and MillerCoors slash malting barley contracts

In another blow to Montana’s struggling ag economy, the state’s barley growers have recently learned that two of the region’s largest buyers of their crop will reduce the number of purchase contracts they offer by up to 60 percent, Great Falls Tribune reported on January 25.

Both Anheuser-Busch and MillerCoors have informed growers they will only be purchasing a fraction of the malt barley they have in the past five years because of an overabundance of barley available on the global market. Combined, the two brewing giants account for the purchase of nearly two-thirds of the barley grown in northcentral Montana.

“The past two growing seasons have resulted in large volumes of high quality barley, which has more than met the requirements of barley users,” said Russ Harville, vice president of raw materials for Anheuser-Busch, in a prepared statement issued near the end of December. “As a result, for 2017, we are modifying our barley procurement to accurately reflect our needs. Anheuser-Busch has a long history of partnership with growers, and we look forward to continuing that partnership.”

As a matter of corporate policy, neither Anheuser-Busch nor Miller Coors disclose details of their purchasing plans or contracts. However, officials from the Montana Wheat and Barley Committee have confirmed bid reductions ranging from 20- to 60-percent. If the high end of that figure is accurate, producers of premium quality malting barley in Montana could lose more than $65 million in potential revenues.

“Everything that I’ve been told is that there is just a lot of good quality malt barley in the bin already,” said Collin Watters, bureau chief for the Montana Wheat and Barley Committee. “We had a good crop in 2015, followed by a bumper crop in 2016. The brewers are looking at their balance sheets saying, ‘We’ve got a lot of grain on our hands,’ and if everything goes as normal this year they won’t need much more.”

The downturn in contracts for malt barley will be especially challenging for communities in Teton, Pondera and Chouteau counties, where the bulk of Montana’s malt barley is grown.

“It’s definitely something that has peoples’ attention,” said Teton County agricultural extension agent Brent Roeder. “The biggest impact is that it takes away some financial stability. Those contracts used to provide quite a bit of stability to the barley growers in terms of enabling them to get a production loan for the current year. They have a lot of unknowns now in terms of what the open market price for barley is going to be. It creates some pretty big questions for them in a production system that has some pretty high input costs in terms of the irrigation, fertilizer and seed requirements.”

The news comes after three successive years of declining wheat prices, pushing many grain growers below the break-even point for yearend profitability.

Barley had been a bright spot on the agricultural landscape. In 2013, the crop hit record prices, with Montana’s barley growers cashing in on nearly $273 million in sales that year. That encouraged more production, not just in Montana but around the world. That pushed supply beyond demand; an economic cycle well known to the nation’s farmers and ranchers.

“We’re our own worst enemies,” said Mitch Konen, a barley producer on the Fairfield Bench who also sits as a board member of the Montana Grain Growers Association. “We’ll produce ourselves out of a price every time. Folks are going to have to fine tune their financial statements and true up their cost of production. We might just have to lower our standard of living at times too. It’s going to be necessity purchases only.”

Changing consumer tastes may also be having an impact on the industry.

“It’s not just that we had an outstanding crop last year — although that had a lot to do with it,” Watters said. “The major brewers are seeing stiffer competition from competing beverages as well. Wine and liquor … those growth trends are a little bit better than for beer. Even within the malt and beer categories, things are changing. When you look at the grocery store beer case; how many of those products are hard sodas or fruit flavored beverages? It’s a different look than it was 10, 15 years ago. (The major brewers) just might not need as much malt in their brewing mix as it is. That basically compounds the problem when you have a great crop on hand already.”

The slump in demand for malt barley leaves growers with only a handful of options. They can maintain current production levels, hoping that a decline in crop yields and quality in other parts of the world will drive up demand for malt barley in the coming year. But if production continues to exceed demand, farmers could be forced to sell their barley on the feed grain market, which typically offers less than half the price malting barley commands.

Growers also can switch some portion of their acreage over to an alternative crop like canola, lentils or durum wheat. That’s an option that many Fairfield area barley farmers already are considering.

“Out here we’re looking at it as an opportunity to learn how to grow something else,” Konen said. “It’s just the way the markets work. We’ve got an abundant supply of the products we produce out here, so the end users, whether it’s Anheuser-Busch or Miller Coors, are sitting on a pile of inventory from big crops, and they’re not looking for additional inventory. Everybody’s looking at trying to come up with some different alternatives.”

“In durum specifically, there’s a lot of interest in both Asia, and also in Europe,” Watters added. “The trend has been toward diminished durum supplies globally, and there’s been some quality issues in different parts of the world. Montana can produce a very consistent and reliable durum crop. A lot of buyers are looking to Montana to fit that niche. I think we’re going to see some growth in durum in the next few years and I’m very optimistic about that.”

Pulse crops like lentils, dry peas and garbanzo beans are another alternative many producers are turning to. The production of lentils in particular has seen incredible growth in Montana in recent years, climbing from near zero production in the mid-1980s to a record harvest around 340,000 tons last year.

But the continued expansion of pulse production in Montana faces its own limitations.

“Everybody’s talking about switching over to alternative crops, and pulses seem to be hot right now,” Roeder said, “but every other country in the world is looking at pulse crops as well – Russia, India, South America. By the end of this production year and into next year, we may be into an oversupply situation in those crops.”

Roeder added that tradition and familiarity with barley production likely will limit any sudden, dramatic shift toward alternative crops.

“Basically that’s what the farms up here are set up for,” he said of barley production in Teton County. “That’s what we know how to grow in this area. The soils are good for it, and the way our precipitation falls is ideal for barley production. That’s what we do best. I’d be surprised if more than 10 percent of those acres will be transitioned away from barley. At the worst it might go up to 25 percent.”

Roeder also notes that Anheuser-Busch and Miller Coors have too much invested in Montana to simply turn their backs on the state’s barley producers. It’s an observation that Watters agrees with.

“I think it’s a concern for growers, but the sky isn’t falling,” Watters said of the brewers’ reduction in contract bids. “It’s more of a market correction at this point. Certainly we’re watching it, and we want make sure that growers have the ability to market their grain the best that they can.”

Top six barley producing states in 2016

1. Idaho - 62.06 million bushels

2. Montana - 48.80 million bushels

3. North Dakota - 42.88 million bushels

4. Colorado - 9.55 million bushels

5. Wyoming - 7.82 million bushels

6. Washington - 7.16 million bushels



24 January, 2017