European barley prices continue to bite for brewers, despite some aluminium respite – analysts

Brewers in western Europe and Africa face the biggest pressures on input costs – with malted barley prices in Europe up 70% on average from 2021, according to analysts at a leading investment management firm.

Despite spot prices for malted barley coming off their peak in recent months, European prices remain stubbornly high (around EUR70 (US$75) a tonne, on average) according to a note circulated by AllianceBernstein’s European & American alcoholic beverages analysts.

Other regions still face pressures on costs but less than in Europe. Many of the large US brewers placed forward contacts at the start of the year before Russia’s invasion of Ukraine, and the Americas are facing less elevated energy costs than in Europe, leaving them less exposed.

As a result of elevated European prices and the ongoing tariff war with Australia, brewers in China are likely to revert to Canada to source their barley in 2023. Africa sources much of its barley from Europe, so will suffer higher prices as a result.

“The outlook for input cost pressures in 2023 is a similar order of magnitude or somewhat less than in 2022, with a huge amount of regional variation, and the highest stress likely to be in western Europe and to a lesser extent Africa,” the analysts wrote. “Although feed barley has followed wheat down, the European malting barley premium over feed has remained stubbornly high. As a result, European malting barley prices are off their highs but still very elevated.”

There is some positive news on aluminium, however, with prices having fallen from their all-time high following the invasion of Ukraine. Current spots of approximately $2,450 per tonne will result in a 9% year-on-year increase for 2023 hedges, the analysts said (down from the 20% increase predicted a few months ago).

The analysts predict “a game of two halves” for aluminium hedges, with brewers likely to face 37% increase in their hedges for the first half of 2023, before some relief in the second half of the year.

“This is still a hike, but is at least far below the level of price inflation on malting barley,” they wrote. “Furthermore, if current spot remains stable, there would be 9% relief in 2024.”

Elsewhere, global wheat prices have also returned to pre-invasion levels, of around $7.50 a bushel, thanks in part to a bumper crop in Russia and lower export taxes.

Of the brewers AllianceBernstein covers, the analysts predicted Carlsberg and Heineken were likely to feel the biggest pressure on costs, due to their presence in Europe and Africa and China to a lesser extent.

US brewers such as Anheuser-Busch InBev and Molson Coors will feel less of an impact on barley. The analysts say Molson Coors will face more pressure than its domestic peers due to its high exposure to aluminium cans and longer hedges.

Tags: Outlook, Africa, brewers, malted barley, Ukraine, Russia, prices, Europe