10 March Barley: A Parabolic Move

Transcription

1 Barley: A Parabolic Move 1

2 Barley is an annual cereal crop consumed as a major food and feed. Basically a grass crop, it belongs to the family of Poaceae, and is considered to be the fourth most-important crop in the world after wheat, maize and rice. This crop has been commercially grown for 10,000 years now. The crop originated in the Middle East and in the lands of modern-day Ethiopia. As a wild grass it was used as feed for animals during early periods, but with the progress of civilization it was domesticated. The European rulers introduced this crop to the new world in the 16 th and 17 th century. Currently, it is used as food, feed and for the preparation of alcoholic beverages. Seasonality Barley is planted as a winter or summer crop in different countries. In the colder regions, barley is planted in April or May as a summer crop; in the warmer regions, barley is planted between mid-september to November. In India, it is mostly cultivated as a Rabi crop. Sowing normally takes place between October and December. Harvesting starts from end-march until mid-april in the northern states, whereas in the central and southern states, harvesting takes place from February to May. The market arrivals start from March onwards. In India, the crop duration of barley is days. Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Sowing Growth period Harvesting Marketing Lean period Users The end users of Malt and Malt Extracts are as follows: Breweries - for beer production Distilleries - for the manufacture of premium quality whisky Food Malted Milk Foods, Bakery, Biscuits, Confectionery, Chocolate Powder, Cornflakes, Immitation Coffee, Baby food, etc. Pharmaceuticals Tonics, Health foods, Slim diets Others - Pet foods, Medium for bacteria cultivation Global scenario Barley is the fourth-largest cereal crop in the world, with a share of 7% of the global cereals production. The world production of barley was stagnant from to , hovering in the range of million tonnes. In , production rose dramatically by 16% to million tonnes as the output jumped in European Union (EU)-27, Russia and Ukraine. Surprisingly, the output in Ukraine doubled in to 12.6 million tonnes from 6 million tonnes, following higher acreage and favorable weather conditions. 2

3 For , the Foreign Agriculture Services division of the US Department of Agriculture has projected world barley production to fall by 3.28%, to million tonnes, compared to million tonnes a year ago. The drop is expected in EU-27, the US, Ukraine and Canada. EU-27 is the largest producer of barley in the world with a contribution of 42% followed by Russia (15%), Ukraine (8%), Canada (8%) and Australia (5%). India does not find a place among the top 10-producing nations. Being a largest producer, EU-27 is also the largest consumer of barley, with a share of 40% of the total world consumption followed by Russia (12%), Canada (6%) and Saudi Arabia (5%). Although Ukraine is the thirdlargest producer, it ranks fifth in consumption because it exports majority of the produce. 3

4 EU-27 is also the top exporter of barley in the world, with a share of 24% followed by Australia (22%), Russia (7%), Canada (20%) and Ukraine (7%). On other hand, Suadi Arabia is the largest importer of barley for domestic consumption, constituting 43% of world imports. The other major importers are China, Iran, Japan and Syria. Japan imports barley for feed and malt production. Globally, barley is mainly used to produce malt for beer-making. Of the 22 million tonnes of global malt production, 90% is produced from barley. Moreover, it is estimated that around 94% of the global malt production is used for making beer. Global balance sheet (Area in 1000 ha and others are 1000 MT) Area harvested Beginning stocks Production Imports Total supply Exports Feed and residual FSI consumption Total consumption Ending stocks Total distribution Yield (MT/ha)

5 Indian scenario Barley is cultivated as a Rabi crop in India. It is sown during October-December and harvested from March to May. Although production is low, the country is self sufficient, besides exporting million tonnes of barley annually. India s annual production has been stable at million tonnes in recent years, with production in estimated at 1.60 million tonnes against 1.69 million tonnes reported last year. The area under cultivation has also remained stagnant at lakh hectares, with a per-hectare yield of around 1,944 kg. In India, barley is largely grown in the states of Uttar Pradesh, Rajasthan and Madhya Pradesh, with a contribution of 34%, 30% and 12%, respectively, in total acreage. Together, these states account for about 80% of the total acreage. 5

6 Although Rajasthan ranks second in terms of acreage, it tops in terms of production, due to good yield level in the state. Rajasthan accounts for 40% of total production followed by Uttar Pradesh (31%), Madhya Pradesh (9%) and Haryana (6%). Like other essential commodities, the barley crop also has a Minimum Support Price (MSP). This price will ensure a floor level for farmers, and market prices will not fall below that level even during the peak harvesting season. For , the MSP for barley was raised by Rs70 per quintal to Rs750 per quintal. Supply demand situation in India Apart from direct human consumption, barley is also used by the beer, food processing and feed industries in India. Annual demand from beer and feed industries is estimated at 60,000 tonnes and 25,000 tonnes, respectively. In recent times, the rising demand for beer in urban India has led to increased demand for barley malt from Indian beer manufacturing units. The country s beer consumption, in volume terms, is projected to grow by 51% during , while it is estimated to have grown by around 45% during State wise production Rajasthan UP Haryana Punjab Madhya Pradesh Uttaranchal Himachal Pradesh Bihar Other Total Source: KCTL Research, Min. of Agri, GoI Factors that may influence market for barley Currently, rising industrial demand is the main influencing factor in the Indian markets. The demand from feed industry appears to be stable, whereas demand from beer and food processing industries is picking up. Lower prices of barley compared to other coarse grains may influence demand from the feed sector, which, in turn, will influence barley prices. Export demand from the Middle East nations is expected to influence barley prices. In fact, strong export demand in and prompted barley prices to go as high as Rs1,300 per quintal. Although India does not import barley to a large extent, import demand will pick up in the near term on the back of rising beer consumption. This may prompt major global barley or barley malt producers to eye India as a potential buyer in the coming years, which, in turn, will alter the demand-supply dynamics and play a key influential role. 6

7 Barley: Spot price movement Source: Bloomberg In 2009, barley in the spot market (Jaipur) traded in the Rs800-1,000-per-quintal range. Like any agriculture commodity, it is also showing a seasonal pattern, wherein prices will show a downtrend during the harvesting period and an uptrend during off-season. Correlation matrix Barley Oct'07-Feb'08 Oct'08-Feb 09 Oct'09-to date Wheat Maize Barley Oct'07-May'08 Oct'08-May 09 Oct'09-to date Wheat Maize As a winter crop, the barley crop period begins in October and ends in February, whereas the peak arrival season takes place for the next three months until May: hence, two-year price data has been taken for correlation analysis. Price outlook As of now, the outlook for the crop appears good, and fresh arrivals are expected during the first week of April. Although there is demand from beer and feed industries, there is also a huge carry-forward stock from the previous season. The price of barley is hovering around Rs860 per quintal in the physical market, and is 7

8 expected to fall further in anticipation of higher output and ample carry-forward stocks (0.15 million tonnes). Weather is a crucial factor during the maturity period, deciding the output of the crop to a large extent. If the weather remains favorable until March-end, then output is expected to be good at 1.5 million tonnes compared to 1.23 million tones. Hence, prices are expected to be under pressure in the near term. The MCX April contract prices are expected to come down towards 830 and then 800 levels. In the long term, the prices are expected to witness a strong uptrend due to strong demand from the beer industry. Annual demand from beer is estimated at 60,000 tonnes. In recent times, the rising demand for beer in urban India has led to increased demand for barley malt from Indian beer manufacturing units. The country s beer consumption, in volume terms, is projected to grow by 51% during , while it is estimated to have grown by around 45% during The beer industries normally do contract farming with the farmers by giving all kinds of inputs to grow the crops and they in turn purchase the barley with remunerative price. Hence, these industries are equipped with enough raw materials to run their business. Technical analysis Barley on the continuous chart: Barley futures resumed its trading on the Indian platform in December Since then, prices moved from around 700 levels to a life-time high of 1,387 levels. However, the price uptrend was unsustainable, and the commodity corrected sharply, witnessing a major retracement in excess of 76.40% to touch 835 levels. Thereafter, the market has been moving in a trend channel with a slightly upward bias. 8

9 Technically, the 76.40% retracement signifies a sufficient correction, but the market is still trading above the initial trend line (white dotted line), indicating that the primary bullish trend still persists in the commodity. The crucial levels to watch out for would be 900, 860 and 830 levels. If the market breaches 830 levels, then we may see a trend reversal that can bring prices down to 800 levels. However, the momentum indicators do not indicate sustained trades below 830 levels as prices would reach an oversold zone. Meanwhile, if the market does not break the trend-line support of , then a reversal trend cannot be ruled out. Hence, on the higher side, prices may move to 1,000 and then 1,080 levels. A breakout at 1,080 will push the commodity to test 1,150 levels. However, due to lower volume (current scenario), the price action could be sluggish in the near term. View on April futures (MCX): The current active contract is April futures. If the market sustains above 855, then we may see a reversal to 960 levels. On the other hand, we would recommend selling on break of 855 levels for a possible target of 825 and then 797 levels (during March-May). In long term, prices are expected to go up on emergence of fresh buying from June onwards as the arrival pressure recedes from the market. We recommend buying between for a target of 960 and then 1000 levels. Barley MCX April: Supports: 830, 795; resistances: 960, Winnipeg Commodity Exchange (ICE Canada) Barley futures have been trading since 1991 at the Winnipeg Commodity Exchange. The price quotations are in CA$143/tonne. The price direction of India s barley futures is similar to the Winnipeg Exchange. The technical chart indicates that prices will move lower, with support at CA$135/tonne. Likewise, on the higher side, the market may move towards CA$175/tonne. 9

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