Is malting barley a real option?

For the first time in many years, tillage farmers are being given the option to grow malting barley on contract. This crop generally carries a premium price, but it also has some higher costs and has higher traceability than feed barley. But it also means a single outlet for the crop and there may be other constraints.

Our biggest maltster, Boortmalt, continues to expand its requirement for malting barley. It has invested in improved malting capacity and in recent years an ever-increasing proportion of the market is being taken by distillers who are successfully marketing Irish whiskey around the globe.

The current attempt to expand the contracted supply is driven largely by demand for distilling. This means that the new contracts will not be grown for Diageo and so may have different specificatioin and even possibly a different price structure. But it will be all malted and used on the home market.

Given where the current Boortmalt collection infrastructure exists, it is not surprising that the preference is for new contracted growers to be located in the Kildare, Wexford, Laois, Carlow and Kilkenny regions.

Part of the additional 15,000 to 18,000 acres to be contracted is to supply additional demand for distilling and part is also to safeguard against the possibility of up to 10% rejection. Another component of this additional area for next year is to compensate for a reduction in the area grown by the current contracted growers due the introduction of crop diversification.

The production of consistent malting quality is most easily achieved on continuous cereal land. Having break crops like peas or beans, or even rape, can add to the difficulty in producing proteins within spec as these breaks can increase nitrogen availability to the crop. But it is also a problem if break crops and rotation cannot be practiced in the longer term as average yields can quickly plateau and fall.

So the need still exists for malting barley growers to mind and nourish their soils to ensure long-term productivity. Options like pig and poultry manures would be very difficult to manage with malting because of the “power” in the products.

Cattle slurry at modest rates is more manageable, but composts or all sorts may be among the best option for malting barley land. You must do something to improve your soil and if you can spread compost on top in the autumn and leave it over winter, it can have a great benefit in terms of enhancing earthworm activity, numbers and soil health.

Perception

Farmers view malting barley in different ways. Traditional growers often comment that malting should not be mentioned in the same phrase as barley.

It is perceived as a superior crop that should not be linked in any way to other forms of barley or other grains. This is arguably correct in an Irish context, with variety choice, management, purity and segregation now adding to the uniqueness of the product.

In Ireland the two main processors – Boortmalt and the Malting Company of Ireland (MCI) – run a tight ship with regard to the quality and traceability of the crop. However, the fact that both maltsters utilise slightly different criteria to measure malting quality acts to show the diversity of the crop globally and is just further proof that ‘beauty is in the eye of the beholder’. The fact is that quality raw materials are required to produce premium malt, beer or spirits in Ireland.

Malting barley production does require more precise management in terms of seeding rate and fertilizer and nitrogen timing in particular. This is now based on good, scientifically driven farm practice. In this case the crop structure is important to help ensure the varying quality requirements. Secondary and later tillers can have grain characteristics that adversely affect the grower’s ability to produce a crop that can conform to the quality standards. But, in fairness, Boortmalt is now engaged in comprehensive long term field and farm research on both distilling and brewing malting barley production to help provide a better understanding of the consequences of the factors we can control and to advise growers accordingly.

On the input side, the seed used by Boortmalt is slightly more expensive than that used for feed barley or even the seed used for MCI contracts. This is justified on a purity basis, but standard blue-label Irish certified seed also has a good record of purity. Boortmalt seed also has lower screenings.

However, in the overall scheme of things this additional seed cost is not massive. As with other crops, fertilizer and mechanisation are the really big costs on owned land and for those with a lot of rented land, this will be one of the biggest cost items.

Yes or no?

So should growers who have suitable land now consider malting barley as a crop option? Many growers are looking for additional crops for crop diversification and greening, but malting barley was not a realistic crop option up to now because production is controlled by contract.

The quick answer to this question is “yes” – any crop that carries a price premium must always be considered. If you feel you can produce the required quality and if the pricing structure contains an adequate premium relative to the alternatives, then the option should be considered.

Basically it takes the same amount of nutrient and work to produce more output value. The potential benefits can be seen year after year by the willingness of existing growers to plant, regardless of ongoing disagreements relating to price and costs.

It takes a certain type of land to grow malting barley. In the past, heavier land was often too rich to produce malting barley as the power in the ground could result in either protein or screenings, causing significant rejection. Nowadays, much of this same land has lost a lot of its inherent fertility and it could perhaps now grow malting barley, providing it can be planted early enough.

While malting barley is a premium crop, it may not always be a profitable crop. Like any other crop, yield can suffer in individual years, quality can be hit by a range of factors and price will not always be what you would like it to be. But the record shows that, from a gross margin perspective, it has always shown itself to be among the best margin crops of the options available to Irish farmers.

Relative margin

As growers look to alternative crops for 2015, malting barley is a real option if you are in the right area and you have suitable land. But it must be about margin.

Most tillage farmers acknowledge the usefulness and accuracy of the figures in Teagasc’s Crop Costs and Returns annual booklet. This compares the different crop options using the gross margin produced at different yield levels and it is up to the grower to use what he/she considers as the most appropriate yield level for the different crops on the land being farmed.

The cost figures used can never be totally accurate for an individual farm as costs like additional fertilizer, wild oat or canary grass control, leather-jackets etc. can significantly alter costs in an individual field.

However, these costs will most likely apply regardless of the crop grown and only the grower can assess these. Many growers aim to have their growing costs lower than those suggested by Teagasc and this is an admirable target.

If there is one deficiency in the Teagasc gross margin data, it is that gross margin is not profit and the gap due to fixed costs can be very variable from farm to farm. For comparison purposes, gross margin provides an acceptable comparison.

Fixed costs are the boogie on all farms and they can be quite substantial and variable. However, research survey data would suggest that a figure of €200/ha (€80/ac) is not an unreasonable figure for tillage farms. This value should then be added to variable costs, as fixed costs will suck up income and consume anticipated profit.

The costs of growing malting barley are somewhat higher than feed barley because Boortmalt seed is slightly more expensive. However, field performance is generally accepted as being very good. Also, high seeding rates are needed to help generate the canopy structure to produce the required combination of yield and quality. There may also be a higher spend on fungicides, as a T3 at flowering can be recommended to help reduce fusarium risk.

In Table 1, I have taken the provisional costs and returns figures to be used by Teagasc for 2015. In any such estimates, price is a complete unknown and another big uncertainty next year will be the cost of fertilizer. But there will nearly always be a relativity in price between the different cereals and malting barley is likely to be at the top end of this scale for cereals.

The prices behind the calculation of the margins in Table 1 are €120/t for feed barley and oats, €130 for feed wheat, €140 for milling wheat and €150 for malting barley. We all hope that these prices will be much higher when the time comes, but we cannot bury our heads in the sand as to the reality of current market conditions.

The figures in Table 1 speak for themselves. A 7.5t/ha (3t/ac) crop of malting barley will leave a gross margin of €261/ha at the costs and prices shown here. While malting barley has the highest of the cereal margins, at realistic yield levels this equates to virtually no income when the €200/ac of fixed costs are subtracted. Even without the fixed costs this gross margin will be negative by the time land rental costs are paid.

But malting barley is still the best of the cereal options and perhaps the one where the anticipated yield is most readily achievable. So, based on these figures, malting barley is among the best prospect for 2015 assuming the relative price differences indicated. However, this year, the gap between the default malting barley price (with no forward selling or hedging) and feeding barley is less than €20/t.

Costs have murdered margins

The big problem has been the increase in production costs in recent years. The growing or variable costs for malting barley are now put at €964/ha for 2015. The equivalent estimate of production cost for 2011 was €904/ha but this was €666/ha in 2006. This escalation in production costs has been similar for all crops.

Interestingly, the only crops in Table 1 to offer similar or better potential gross margins are peas and beans. The relative prices used here are €200/t (human consumption) and €170/t, respectively, but the margins calculated are heavily influenced by the re-coupled payment of €250/ha in these calculations.

However, if we were to return to more normal prices (€145/t for feed and €185/t for malting barley) in 2015, these margins would increase to €234/ha for spring feed barley and €524/ha for spring malting barley at the same yield levels. And the 10t winter barley crop margin would increase to €422/ha. Price remains critical in generating profit.

So no matter what way you do your figures, you are likely to generate a higher margin from malting barley providing you can produce the quality specs required in conjunction with a good yield level.

Winter malting

As indicated previously, crop diversification is an issue for all tillage farmers and it is also an issue for Boortmalt because they have so many malting-only growers. These are growers who have developed their business to maximise the contract production of malting barley over the years.

Some one-crop growers will avail of the option to stay with one crop by taking the green cover-crop equivalence measure within GLAS. This will be sorted in time for spring planting, so the details and option will be clear. But the penalty for getting it wrong, or for failing to comply because the GLAS application failed, could be very severe.

Others are making a definite decision that they do not want to participate in an environmental scheme and they are opting to meet the diversification requirements with additional crops. Some have already planted winter barley for this reason. In a year’s time they might move back to malting only when they see how the GLAS alternative has performed.

One alternative that emerged recently is the option to plant a standard spring malting barley variety in late autumn as a winter crop. An area of a spring variety planted in winter is a separate crop for crop diversification purposes. But is this a good option for growers?

The greening payment accounts for 30% of one’s potential entitlement and this has to be secured. While it seems like greening failures will be proportionate, the early indications are that payment reductions will be very severe. So the only real choice is to comply with greening in whatever way an individual grower finds most suitable.

Where a number of crops are to be grown, these need to be within the proportion thresholds. The alternative is to meet the greening requirements by using equivalence within the GLAS scheme.

So if you are going to have a number of crops, then winter planting is a real option. But it is not all plain sailing and there are things that need to be considered.

In general, spring varieties tend to show lower disease resistance when planted in the autumn and so more robust fungicide use will be required, especially early in spring.

For broadly similar reasons, the planting date should be delayed until late October or early November. This is to help ensure that the crop does not grow too proud in the autumn. But with late planting, growers are advised to avoid planting in areas where there is a big risk of crow damage throughout the winter.

The varieties that can be grown are Taberna, KWS Irina, Propino and Overture. Some of these have already been trialled in winter planting in recent years and there were no real issues or concerns raised.

Husbandry will be broadly similar to spring-sown crops, with the possible exception of the T1 fungicide, which may need to be earlier and more robust. Seed rate and plant establishment is still important and the plant will be smaller coming out of the winter.

Planting conditions remain very important and if you feel you cannot roll post-planting, perhaps you should not sow either.

It seems unlikely that yields will be higher with winter planting, but yield may prove to be more consistent over time, as will protein content. Maturity date will differ slightly with the winter planted crop being a little earlier to ripen, but only a little.

The same contract and pricing arrangements will apply to winter-planted crops.

It is important to remember that all malting varieties have a high sprouting risk if harvest conditions are wet but this applies to spring sowings as well as winter.