The Outlook for Barley

The Outlook for Barley Challenges Facing the Barley Supply Chain Doyle Lentz, Chair, ND Barley Council January 31, 2012

Objectives The Trends Barley production. Competing crops. The Decisions Factors growers use in determining what to plant. The Outlook Forecast for 2012. Procurement strategies. The Summary Working together.

Trends in Area Planted Key Barley States. Percent Area Planted (Acres) Change From STATE 2006 2007 2008 2009 2010 2011 2010 Idaho 530,000 570,000 600,000 530,000 490,000 520,000 6% Maryland 50,000 45,000 45,000 55,000 45,000 50,000 11% Minnesota 105,000 130,000 125,000 95,000 85,000 70,000-18% Montana 770,000 900,000 860,000 870,000 760,000 700,000-8% North Dakota 1,100,000 1,470,000 1,650,000 1,210,000 720,000 400,000-44% Oregon 55,000 63,000 57,000 40,000 45,000 38,000-16% Washington 200,000 235,000 205,000 105,000 90,000 125,000 39%

Trends in Area Harvested Key Barley States Percent Area Harvested (Acres) Change From STATE 2006 2007 2008 2009 2010 2011 2010 Idaho 510,000 550,000 580,000 510,000 470,000 500,000 6% Maryland 32,000 34,000 35,000 48,000 34,000 36,000 6% Minnesota 90,000 110,000 110,000 80,000 70,000 60,000-14% Montana 620,000 720,000 740,000 720,000 620,000 620,000 0% North Dakota 995,000 1,390,000 1,540,000 1,130,000 670,000 350,000-48% Oregon 42,000 53,000 42,000 32,000 40,000 32,000-20% Washington 190,000 225,000 195,000 97,000 81,000 115,000 42%

Trends in Barley Production Key Barley States Percent Production (Bushels) Change From STATE 2006 2007 2008 2009 2010 2011 2010 Idaho 42,840,000 42,900,000 49,880,000 48,450,000 43,240,000 46,000,000 6% Maryland 2,784,000 2,460,000 3,150,000 3,360,000 2,312,000 2,880,000 25% Minnesota 5,400,000 5,940,000 7,150,000 4,960,000 4,340,000 3,060,000-29% Montana 31,000,000 31,680,000 37,740,000 40,320,000 38,440,000 31,000,000-19% North Dakota 48,755,000 77,840,000 86,240,000 79,100,000 43,550,000 16,450,000-62% Oregon 2,436,000 2,809,000 2,100,000 1,920,000 2,960,000 2,400,000-19% Washington 11,970,000 13,950,000 11,115,000 6,208,000 5,832,000 8,280,000 42%

U. S. Barley Acreage Trend Since 1987. (Barley decrease rate is 312,000 acres/year)

Trends in Barley Utilization and Distribution U. S.

North Dakota Barley in 2011. Typical Planted Area Harvested Area Estimated Production Variety Type Use Percent Acres Hectares Acres Hectares Bushels Metric Tons Tradition 6 row Malting 54.40% 217,600 88,062 190,400 77,054 8,948,800 194,839 Lacey 6 row Malting 16.90% 67,600 27,357 59,150 23,938 2,780,050 60,529 Stellar-ND 6 row Malting 0.60% 2,400 971 2,100 850 98,700 2,149 Conlon 2 row Malting 7.30% 29,200 11,817 25,550 10,340 1,200,850 26,146 Legacy 6 row Malting 2.00% 8,000 3,238 7,000 2,833 329,000 7,163 Robust 6 row Malting 2.50% 10,000 4,047 8,750 3,541 411,250 8,954 Larker 6 row Malting 0.50% 2,000 809 1,750 708 82,250 1,791 Haybet 2 row Feed 3.20% 12,800 5,180 11,200 4,533 526,400 11,461 Rawson 2 row Feed 0.80% 3,200 1,295 2,800 1,133 131,600 2,865 Pinnacle 2 row Malting 5.50% 22,000 8,903 19,250 7,790 904,750 19,699 Azure 6 row Malting 0.30% 1,200 486 1,050 425 49,350 1,074 Morex 6 row Malting 0.30% 1,200 486 1,050 425 49,350 1,074 Hockett 2 row Feed 0.80% 3,200 1,295 2,800 1,133 131,600 2,865 Haxby 2 row Feed 0.30% 1,200 486 1,050 425 49,350 1,074 Other NA NA 4.60% 18,400 7,446 16,100 6,516 756,700 16,475 TOTALS: 100.00% 400,000 161,878 350,000 141,643 16,450,000 358,160

Barley Production Percentage in North Dakota Malting Varieties: 90.3% Feed Varieties: 9.7% Growers target malting barley. Presents management challenges. Difficult to obtain malt quality. Acceptance approximately 60 65%.

Reasons for Production Decrease in North Dakota Farmers have many alternative crops from which to choose. Corn, soybeans, canola, spring wheat. Volatility in export demand. Loss of feed barley markets. Farmers disappointed with business practices of malting companies. Inconsistent purchasing and grading. Long time to store production. Lenders (bankers) not supportive of barley due to constraints on cash flow.

The Decisions Many factors are involved in selecting crop enterprises at the farm level. Some crops are easier to produce. Farming is a business. Like any business, it is critical to: Have consistent cash flow. Turn inventory. Factors divided into 2 categories. Crop quality. Crop business management.

Decisions: Crop Quality Factors HARD RED MALTING FACTORS UNITS SPRING WHEAT BARLEY CORN SOYBEANS Crop Quality Factors --Falling Numbers seconds >350 NA NA NA --Test weight (bulk density) lbs/bu 60 48 56 60 --Protein % 14% base <=14% NA NA --Moisture % <=13.5% <=13.5% <=12.5% <=9.0% --Germination % NA >96% NA NA --Mold in seed crease visual NA 5% Maximum NA NA --Deoxynavalenol (DON) ppm Varies 2 NA NA --Heat damage % NA Buyer Spec. FGIS FGIS --Frost damage % NA Buyer Spec. FGIS FGIS --Sprout damage % NA 1% Max NA NA --Color visual NA Bright or Light Gold NA NA --Plump Kernels % NA 70% minimum NA NA

Decisions: Crop Business Management Factors. HARD RED MALTING Crop Business Management Factors UNITS SPRING WHEAT BARLEY CORN SOYBEANS --Gross margin (Profitability) 1. Market Yield bu/ac 44 64 108 30 2. Selling price $/bushel $7.47 $6.06 $4.85 $10.91 3. Gross Revenue $/acre $328.68 $387.84 $523.80 $327.30 4. Variable Costs $/acre $183.77 $170.41 $305.16 $145.95 5. Gross Margin (GR - VC) $/acre $144.91 $217.43 $218.64 $181.35 --Crop insurance guarantee $/acre --Storage on farm NA Growers Call Required Growers Call Growers Call --Storage payments for on farm $/bu NA 0.04/bu/month NA NA --Price transparency NA Yes Guarded Yes Yes --Receipt of payment Days Prompt on delivery up to 120 days Prompt on Delivery Prompt on Delivery --Banker support NA Yes Limited due to cash flow Yes Yes --Crop management intensity NA Fairly easy Difficult Easy Easy

Scoring the Decision Matrix Growers seek ease in crop production. Scores. 1 = Easy (green). 2 = More difficult (orange). 3 = Very difficult (red). Lower scores mean higher odds of growers selecting a given crop.

Decisions: Scoring Quality HARD RED MALTING FACTORS UNITS SPRING WHEAT BARLEY CORN SOYBEANS Crop Quality Factors --Falling Numbers seconds 1 1 1 1 --Test weight (bulk density) lbs/bu 1 1 1 1 --Protein % 1 2 1 1 --Moisture % 1 1 1 1 --Germination % 1 2 1 1 --Mold in seed crease visual 1 3 1 1 --Deoxynavalenol (DON) ppm 2 2 1 1 --Heat damage % 1 2 1 1 --Frost damage % 1 2 1 1 --Sprout damage % 1 2 1 1 --Color visual 1 2 1 1 --Plump Kernels % 1 2 1 1 TOTAL SCORE FOR QUALITY: 13 22 12 12

Decisions: Scoring Business HARD RED MALTING Crop Business Management Factors UNITS SPRING WHEAT BARLEY CORN SOYBEANS --Gross margin $/acre 1 2 1 1 --Storage on farm NA 1 3 1 1 --Storage payments for on farm $/bu 1 2 1 1 --Price transparency NA 1 2 1 1 --Receipt of payment Days 1 3 1 1 --Banker support NA 1 3 1 1 --Crop management intensity NA 1 3 1 1 TOTAL SCORE FOR BUSINESS FACTORS: 7 18 7 7 TOTAL SCORE: 20 40 19 19

Deciding Which Crop to Produce Growers choose crops that score lower (easier). Barley has significant challenges for growers. The downside risk of not receiving malting price is too great for many growers. Intensive management for barley is not always rewarded. Corn and soybeans are almost idiot proof.

More Research is Needed to Keep Barley Competitive With Corn, Soybeans.

The Outlook Growers guardedly optimistic. Prices look good, but are one of many factors in deciding what to plant. Hopefully these prices can be achieved. Downside risk is a critical concern. To encourage barley production, buyers will need to: Contract the barley (it is now a Specialty Crop ). Known price. Act of God clause. Accept delivery promptly. Farmers need to turn inventory.

The Summary Working together. Procurement education. There are many buyers with minimal to no background in production agriculture. Buyers need to understand the on-farm decision process (mutual business respect). Barley producers are the foundation of the supply chain. And can move to supply other crops to other markets.