As 2019’s summer “hellish heatwave” overwhelms Europe, memories are triggered of the great British summer of 2018. Sunshine drenched crowds poured out onto the streets from the bustling bars and pubs as World Cup fever coincided with the hottest summer on record (Met Office). Beer consumption was booming, as its ingredient’s prices rocketed. Indeed, malting barley prices were rallying as the heatwave took its toll on yields. A year on, we look at what caused malting barley prices to rally and the situation in 2019.
The impact of the 2018 World Cup on spending in Great Britain should not be underestimated; a report by the Centre for Retail Research (CRR) estimated each England goal at the World Cup to be worth an extra £33.2 million to pubs in Great Britain. Indeed, pub chain Greene King (World Cup economic boost) estimated they sold half a million extra pints in 90 minutes during England’s victory over Panama in the world cup group stages. Overall, the group stages of the world cup resulted in 14 million extra pints being consumed (Beer and Pub Association). The 2018 “World Cup – heatwave boom” took hold to such a degree that pubs quite literally ran out of gas, as a CO2 shortage occurred (CO2 shortage).
Source: GB met office, AHDB
While the pubs were thriving, beer’s key ingredient malting barley was wilting due to the dry weather. Great Britain is the fourth largest producer of barley in the EU, averaging 7 million tonnes per annum. On average 1.4 million tonnes per year of this goes to the maltsters, who turn this into (Malting Process) the malt required by brewers and distillers to make beer and whiskey. A few traditional maltsters in Great Britain remain, despite some recent closures (Tuckers in Devon closed in 2018), but most of the malting is done in large industrial malting houses. The dryness experienced in Q3 2018 (see graph) caused a significant rally in prices. While the total rainfall (graph uses data from MET Office station in Cambridge) in Q3 fell well below average, prices spiked as the dryness reduced yields. GB Spring barley production in 2018 fell by over 300,000 tonnes versus 2017, while winter barley production was down by 230,000 tonnes, according to DEFRA. In anticipation of the lower crop, The AHDB’s malting barley index rose from £156/tonne in April 18’ to £211/tonne in September 18’.
Great Britain was not alone in experiencing this “World Cup – heatwave boom” in 2018. Indeed, as France’s football team went on to win the world cup, their malting barley crop also suffered under the heatwave. While GB’s crop was 500,000 tonnes lower than the previous year’s crop; France’s malting barley crop fell by 900,000 tonnes. Prices in the river port of Creil, north of Paris, rallied in anticipation of this, rising from £156/tonne (basis FOB Creil converted from euros) in April 18’ to a peak of £219/tonne in August 2018. Interesting to observe is the timing of the rally; on average 1 month earlier than the AHDB malting barley index. It seems, much like in football where France were one step ahead of the English football team, so were the malting barley prices.
Source: EU Commission
As (almost) simultaneous cross channel price movements occurred in 2018, a similarly timed recovery in yields is expected in 2019. The USDA forecasts GB to increase production by 500,000 tonnes compared with 2018; while France is expected to increase planted area by 110,000 ha, leading to a 1 million tonne increase in production. Overall EU production is predicted to reach 62 million tonnes, which would be the highest level for 4 years if achieved. This influx of extra production has led to a price reaction in the French FOB Creil market; as prices have fallen from £200/tonne in October 2018 to £147/ tonne in March 2019. The AHDB malting barley index has followed suit, tumbling from £210/ tonne in October 2018 to £167/ tonne in March 2019. Indeed, the correlation between the two markets remains strong; with the FOB Creil French market seemingly one step ahead of the GB market. Stable provides price risk insurance to cover these markets. For the French market, Stable uses the FOB Creil malting barley index and the GB malting barley price index is provided by the AHDB.
Source: AHDB & Reuters
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