[In the September 2011 issue of BYO, we published a story on new malts. As part of that story (on page 39), I wrote a sidebar on barley farming and malt prices. This is an extended version of that sidebar. ]

If you’ve only noticed one thing about malt in the past few years, the thing you’ve likely noticed is that it is a lot more expensive than it used to be. To find out the the reason for this, plus ask for an outlook on malting for the near future, I talked to Dave Kuske, Director of Malting Operations at Briess Malt and Ingredients. 

Kuske explained that barley prices were very volatile right now as a number of factors were contributing to a steady drop in worldwide barley production. But, it wasn’t always that way. 

The Good Old Days

As late as the early 1990s, the US market for barley was stable and farmers who grew it were able to get a good price for their crop. There was an open market for barley and the acreage planted to barley far exceeded the amount required for malting. There were several reasons for this. For one, there was more than one market for barley. If barley met the demands of maltsters, it could be sold for a nice profit. If it didn’t meet malting standards, it could still be sold as feed. The price for feed barley was less than for malting barley, but selling the crop as feed would not have been a disaster for the farmer. Also, many countries in Eastern Europe, despite being in prime barley growing latitudes, were net importers of barley and the US exported a small amount of barley every year. 

In terms of price per bushel, growing barley was competitive with other grain crops. In addition, there were parts of the US (such as North Dakota, Montana, Wyoming and Idaho) where farmers could grow barley, but the climate or growing season was  unsuitable for growing corn or soybeans. And finally, barley was on a level playing field with other crops when it came to government subsidies and crop insurance programs. 

Changes Hit the Barley Market 

Things started to quickly change in the 1990s, though. Corn and wheat were always more abundantly-planted crops than barley, and when it came time to upgrade railroads and other infrastructure, agribusiness companies invested in ways to more cheaply move corn and wheat, but not barley. The feed lots in California, which used to buy barley as feed, found it less competitively priced and started phasing it out. That trend that has continued to the point that the market for feed barley in the US is basically gone. 

Likewise, political change in Eastern Europe brought capitalism to many countries and with it, investment in agricultural infrastructure. Countries that used to be importers of barley now became exporters and the US no longer exports any appreciable amount of barley. Currently, if a US farmer grows barley, the only people who will buy it are maltsters. 

In addition, genetic improvements in corn and soybeans expanded the geographic range where farmers could successfully grow them. Drought resistance and shorter time sto maturity in GMO crops meant that farmers in the northern US no longer had to plant barley; they now had options. 

And lucrative options they were. These days, with government subsidies for growing corn as a biofuel, and the greatly improved yields of GMO corn vs.  barley (which has attracted little interest from crop engineers), farmers can earn significantly more money planting corn (or, because of its high yield, GMO soybeans) compared to barley. Likewise federal risk management programs (crop insurance) for farmers favor the “big” crops like corn, soy and wheat at the expense of crops such as barley, oats and sorghum. 

These changes have brought big changes in what the US farmer produces. In 1960, the US produced 5,500 billion bushels of feed grains; 64% of this was corn, 7% was barley (and the rest was oats and milo). In 2009, with overall US farm acreage having shrunk since the 1960s, the US produced 13,400 billion bushels of feed grains — 94% of which is corn, 2% of which is barley. The total amount of barley produced in the US since 1960 has dropped by almost half. 

In addition, Wall Street has now gotten in on the act. Grains, like many other commodities are now packaged into exchange-traded funds (ETFs) and bought and sold as investments. Investors, most of whom have no intention of every taking delivery of the crop, can buy and sell these EFTs just as they would stocks. Kuske estimated that by the time a bushel of corn makes it from the farmer to the company taking possession of it, it has changed hands on average 9 to 10 times. All this speculative interest in grain crops has increased the volatility in their markets. 

Mother Nature hasn’t been helping out either, although growing conditions in 2008 and 2009 were good, 2010 yielded a poor crop and outlook for 2011 is just as bad. Flooding in the upper Midwest has left many fields unplanted or washed out. 

Right Here, Right Now

Today in the US, corn is king. Although demand for corn as a food product is basically level, demand for use as a biofuel (and government subsidies for this) has pushed corn acreage to new highs. And the yield of modern GMO corn is amazing. Last year I visited family in Iowa and was shocked to see how densely planted the corn fields were. My cousins told me farmers in their area used to harvest about 70 bushels per acre in the 1970s; today, the yields was around 220 bushels per acre! 

Barley has always lagged far behind corn and wheat in terms of acres planted. But today barley is basically a specialty crop, grown only for maltsters. The total amount of barley grown by US farmers will be enough to supply maltsters, but there will be little left over beyond a small bit of rejected malting barley that gets sold as feed. If trends continue, the already miniscule markets for feed barley and export barley will be gone in a year or so.

The overall acreage of 2-row malting barley grown in the US has remained roughly constant from 1985 to present, but plantings of feed barley and 6-row malting barley have decreased. 

Currently, basically all of the barley grown by US farmers is grown by contract to maltsters. There are no “spot” markets and farmers in former regions devoted almost entirely to barley now have a variety of crops to choose from when they plant. 

The Future

Unless trends reverse themselves, which is highly unlikely, barley growing will become completely contracted and the only buyer of barley in the US will be maltsters. Competition with other crops for acreage will mean barley is pushed into other marginal growing areas in the northern US. More US barley acreage will be grown in irrigated fields (as opposed to farmland that usually receives adequate rainfall) and this may help improve consistency. 

So far, malting companies have shown no interest in planting GMO varieties of barley. Of course, seed companies have shown little interest in producing any varieties of GMO barley, either. A little work has been done on moving resistance to root-rotting fungi into barley, and one group has engineered a barley strain to produce more heat-stable glucanase enzymes, but these strains are not grown commercially. Improvements in yield, disease resistance, drought resistance and growing cycle could make barley more competitive with other grain crops, but with only one buyer for barley — and one disinterested in GMO barley due to consumer disapproval — no one is likely to invest in genetically improving barley. 

For Homebrewers

Unlike the hop shortage a few years ago, there is no chance that brewers will suddenly face a large deficit of barley malt in the coming years. Unlike the circumstances contributing to the hop crisis, which were largely unseen, the factors affecting malt markets have been trending this way for many years. Malt companies will contract for all the barley they need, and then some to cover for possible crop losses, and brewers will get their malt. New legislation may put a damper on trading in food commodities and help reduce the volatility in the market.