Monday, January 28, 2008

O Brother, Where Malt Thou

Last week I wrote about the "Great Global Hop Crisis of 2007," so this week I thought I'd talk about the rising costs of arguably the most important beer ingredient...Barley Malt. The barley malt market differs from the hop market in that barley has other uses, whereas hops are only used in the brewing industry. The main competition for the malted barley we use in brewing is barley grown for animal feed. As formerly third world countries become richer and the Chinese middle class grows and becomes more prosperous, those people want to eat meat. Consequently, feed barley demand has risen and the higher agronomic yield of feed barley varieties forces malteries to pay a premium to growers to insure that malting barley varieties will be grown in sufficient quantities. This phenomenon in and of itself would have been sufficient to push up the price of barley malt, but two other factors have also caused the upward spike in malt prices. The increase in biofuel production, and poor weather conditions in the three main growing regions: Europe, Australia and Canada.

As energy costs have skyrocketed, the demand for biofuels has risen. In the US the emphasis has been on corn derived ethanol, the result has been an increased demand for corn, from 400 million bushels in 1995 to more than 2 billion bushel in 2006 and consumption is now estimated to surpass 4 billion bushels from the 2007 crop. This requires the production of 26 million acres. Just two years ago, the US was the world's largest exporter of corn, this year it will need to import stocks. Corn is typically not grown in barley growing regions and therefore does not compete directly for acreage. However, the explosive demand from the corn-based ethanol industry has caused corn prices to double and diverted corn from traditional uses including animal feed. As a consequence, the feed barley prices has risen sharply. In Europe, the focus has been on biodiesel production from oilseed rape or canola. In the case of canola, this crop can be grown on the same land as barley and therefore is a direct threat to barley acreage. Until barley malt prices rise enough to make it more profitable to grow than biofuel crops, we will see farmers devote less and less acreage to malt-specific barley varieties.

Poor weather conditions in the main barley growing regions has exacerbated already low barley malt stores. It begins in Europe in the summer of 2006, where hot and dry weather caused higher than ideal protein levels in the barley crop. The rains eventually came late in the year, but at the wrong time and in too great of quantities, causing pre-sprout damage. The result was as much as 75% of the German, Polish and Czech crops were lost, translating into a 1 million metric ton malting barley shortage. In Australia, barley raised as a winter crop on the southeast, south and southwest fringes of the country suffered a drought in 2006. The conditions were so bad that many farmers turned animals onto the fields in an attempt to get some value out of the land. In other cases, farmers simply walked away, abandoning the farms. The Australian harvest expected to yield 9.5 million metric tons only amounted to 3.7 million metric tons. As for Canada, the 2006 harvest was better in quality but fell short of it's expected quantity, only yielding 9.5 million metric tons against it's estimate of 10.85 MMT.

Given the very poor crop in two of the three major growing region in the world, maltsters needed a good harvest in 2007, since all the grain in storage was to be exhausted come the 2007 harvest. It is expected that Europe will have a 2007 crop malting barley deficit of 335,000 metric tons. Since the 2007 harvest was being relied upon for immediate use due to the lack of 2006 crop carry over stocks, this places even more importance on the yield elsewhere in the world and on the 2008 crop. Meanwhile barley prices continue to rise.

So what does this mean for us at Bluegrass Brewing Co. and you the consumer? Not a whole lot actually. The barley malt situation is not as dire as the hop shortage mainly because there is malt to be had, the problem is that it is that we will be receiving lower quality barley at double the price. Not exactly the ideal situation but manageable. As for now we are not planning on raising beer prices and hopefully we can hold the line on quality. But as for the big picture, malt quality is fairly far down on our list of concerns, in our 15 yr old brewery, we just hope that the roof doesn't cave in on us.

never trust The Sober Brewer
Jerry Gnagy

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