Malting barley can be one of the most profitable crops in Western Canada — if you can grow it, and if you can sell it.
That’s not necessarily easy. Many farmers try — it’s estimated that 80 per cent of the barley sown in Western Canada is seeded to malting varieties. But only about 20 to 30 per cent of that is accepted for malting.
While there are high quality requirements for malting barley, there isn’t an official grade with standards set by the Canadian Grain Commission. The standards, the decision to purchase, and the price are all up to the buyer. The first two conditions also applied when malting barley was controlled by the Canadian Wheat Board, but the board required that all malting barley be sourced directly from producers, and it set the price at whatever premium it could over feed barley. Now maltsters or selectors can source barley from anywhere they find it, and at whatever price individual sellers are prepared to accept.
The change to an open market has altered the dynamic for both buyers and sellers.
“Absolutely now there’s more contracting directly with producers in the post-wheat board era, particularly on the part of maltsters, but grain companies are contracting as well,” says Peter Watts, managing director of the Canadian Malting Barley Technical Centre.
“I would say the biggest change is there’s been a much greater move to production contracts and deferred delivery contracts,” adds Lorelle Selinger, North American merchandising manager at Cargill.
Bob Sutton, commercial vice-president of Rahr Malting Co., says companies like his have the opportunity to secure their barley supplies prior to seeding while farmers are able to secure pricing on their crop before they plant it in the ground.
“It’s a level of planning that neither of us had the opportunity for before,” Sutton says.
Rahr has a facility in Alix, Alta. that runs at capacity and the company needs to ensure it has the barley to feed its plant, Sutton says.
Brian Otto, chairman of the Barley Council of Canada, likes the open market and says 75 per cent of his barley is typically priced before harvest.
“I know what the price is,” he says. “I’d much rather have control of how I price my crops in my hands, and I know exactly what I’m getting paid for.”
Otto says the new system means farmers know where their barley is going and malt companies know where their supplies are coming from. And producers make the decision and accept the risk of when to price their barley.
“What we do is we’ll contract so many tonnes of barley with a malt company — or you may deal with more than one — and they’ll offer prices for malt barley from now till they have enough barley contracted for their customers. And you can price into those. Say it’s $5.50 now, it might be $5.75 in two months, or it might be $5.40 in two months. So you as a producer have to decide when you want to price your barley.”
Saskatchewan Barley Development Commission director Allen Kuhlmann isn’t as enthusiastic.
“They buy it all when they can and call it forward as they need it, and the farmer stores it until such time as the maltster says ‘bring it forward.’ And he isn’t paid for that storage in most cases,” says the Vanguard, Sask. grower.
Otto praises malt barley contracts for containing an Act of God clause that allows farmers out of their deals if weather events make their barley unacceptable for malt, but Kuhlmann insists the contracts don’t exist to protect the farmer, who can be hit with discounts depending on what’s getting accepted that year.
“The malt specs, I don’t think you’d say they’re standard, they’re somewhat standard — 95 per cent germination, for instance, is important, and if it’s below that, I suspect only in a very bad year do they accept it. But you could end up with a spec that’s a little below and they might eat it, but there will be a discount for that.”
The same holds true for chitted or sprouted barley, and if it’s not at the best end of an accepted range, a discount may be applied as well, Kuhlmann says.
He says the contracts can be difficult to decipher, especially given the legalese of the fine print, and that it’s difficult for producers to run all their contracts by a lawyer.
“It’s a lot harder than it used to be… I think producers have very little market power at this point. Nobody’s sticking up for the farmers’ rights except themselves. You can like or dislike the wheat board, but you did know whose side they were on,” Kuhlmann says.
He also says malt premiums over feed are another concern.
“There are going to be instances where feed barley is going to be priced fairly close to malt barley and that happens; that’s just the way the marketplace works,” Otto says. “But certainly right now you’re seeing malt barley premiums are very attractive over feed barley prices.”
Cargill’s Selinger says that because of tight supplies, the spread between feed and malt has widened above historical averages. “If a farmer can get malt, it’s a very profitable crop to grow.”
Kuhlmann, however, thinks the premiums are typically mostly discouraging.
“Last spring, when I was signing a contract for malt barley, I was being offered $5.75 if it met the spec., and I was getting $5.50 for feed barley,” Kuhlmann says. “So is there enough premium in that case? Absolutely not.”