China has more than doubled its purchases of Canadian barley, taking advantage of bargain prices for the beer ingredient due to abundant high-quality supplies in Canada.
The extra sales come at the expense of Australia and Europe, the world's two biggest barley-exporting areas, where harvests were disappointing due to a mix of drought and excessive rains. Canada is the sixth-biggest barley shipper.
Canadian government data showed the country's exporters, including Richardson International and Cargill Inc, were on track for record large shipments, selling 400,000 tonnes of barley to China from Aug. 1 through October, up sharply from 158,000 tonnes a year earlier.
"That's really promising for us as farmers," said Canadian grower Jason Lenz, who grew a bumper barley crop near Red Deer, Alberta. Surging sales are likely to expand Canada's barley plantings next spring, he said.
Canadian supplies of malting-quality barley are the largest in four years, after ideal dry harvest weather, even though the overall barley crop shrank 10 per cent from last year, said Peter Watts, managing director of the Canadian Malting Barley Technical Centre, an industry group.
Barley is also sold for livestock feed.
The supply swing has drained the usual Canadian malting barley premium over Australian supplies by half, to $10-$20 per tonne, resulting in sharp demand from brewers of higher-priced Chinese beers such as Tsingtao Brewery, Anheuser Busch Inbev and China Resources Beer Holdings , Watts said.
Maltsters, including COFCO Corp and Supertime, also buy Canadian barley to turn into malt, the product directly used in beer.
Beer consumption in China has declined since 2013, but its premium beer niche category has grown by double digits annually since at least 2012, according to Euromonitor data.
Canadian malting barley commands a higher price, especially for China's premium beer market, because of its dark color and higher protein, which allows for better foaming, Watts said.
He expects China to buy a record 1 million tonnes of Canadian barley by July 31, the end of the 2017-18 crop marketing year.
"This is helpful for the long run because it establishes Canada's presence there," he said.
The shifting trade dynamics are not likely to affect beer prices, Watts said.
A barley trader in China, who was not authorized to speak publicly, said it was premature to write off Australian malt barley supplies, as the crop is not yet fully harvested.
The U.S. Department of Agriculture estimates Australia's barley harvest at 8 million tonnes, and European Union output of 59 million tonnes, both the smallest in five years.
"Australia has had problems with crops everywhere this year," said Adam Davis, head of commodities at Merricks Capital in Melbourne.
European barley quality was disappointing this year, and the euro's strength makes exports less competitive, said a German malting barley trader, who was not authorized to speak publicly.
Rival supplies to Canada's could arrive quickly however, when Argentine farmers start harvesting barley this month, the trader said.