Australia: Plenty of good cheer flowing in GrainCorp’s malt division thanks to surging demand for whisky and craft beer

While drought continues to dehydrate GrainCorp’s Australian crop receival and grain trading earnings, there’s plenty of good cheer flowing in its global malt division, the Queensland Country Life reported on February 26.

GrainCorp Malt, which owns eight maltster and distribution businesses in Australia, Britain and North America, is growing its base and profitability thanks to surging demand for whisky and craft beer.

Craft beer’s consumption popularity in the US has been particularly robust.

Sales have been complemented by “explosive” growth in the “brew pub” sector serving up good food and good beer, plus, at the other end of the spectrum, Mexican-style beer market growth of five to six per cent annually.

“Mexican beer tends to be the party beer, while craft beer is what you drink because you really like beer,” managing director, Mark Palmquist, told GrainCorp’s annual general meeting.

Craft beer, brewed with much more malt than conventional beers, is experiencing 4.5pc market growth, having posted surging sales since early this decade.

The market has evolved to be complemented by the rising brew pub scene, where an additional 1000 pubs opened in North America in 2017-18 and another 800 are tipped this year.

“It all fits phenomenally well with our Country Malt distribution network,” Mr Palmquist said.

“We’re well positioned to take out the complexity of supply and help their production needs.”

Country Malt has 11 North American warehouses providing the craft beverage sector with premier brands and ingredients, while another newly launched subsidiary, Brewcraft USA, has five sites servicing the flourishing home brew market.

The two distribution networks are part of GrainCorp’s Great Western Malt which has malt houses in Vancouver, Canada; Washington state in the US, and a newly expanded site in Pocatello, Idaho, now significantly bolstering malt division earnings this year.

In Scotland Bairds Malt is spending about $94m enlarging its capacity at Inverness and Arbroath to service strong growth in the distilling market for single malt whisky (100pc barley malt, as opposed to wheat, corn or rice blends).

The expansion work will conclude in 18 months.

“Overall we’re getting good growth in consumption areas which take a lot of malt,” Mr Palmquist said.

The only potentially serious cloud on the horizon was the fallout from a Chinese anti-dumping claim against Australian barley exporters, which GrainCorp was monitoring closely.

Ironically, global malt barley planting areas hit near 40-year lows in 2018, with sliding production trends particularly obvious in the past decade as other feed grain crops compete for paddock space.

The 2018-19 world crop is tipped to be about 141 mln tonnes, down from 144 mln last year.

Mr Palmquist said to protect against raw ingredient supply shortfalls to the malt division’s near capacity order book all GrainCorp barley purchases were via guaranteed grower delivery contracts.

However, overall grain supplies to the company in eastern Australia are taking a battering, with GrainCorp’s total receivals so far this season at just 2.2 mln tonnes after the total eastern states winter crop harvest shrank to about 6.5 mln tonnes - down from an already reduced 15.1 mln in 2017.

Summer crop prospects are looking sad, too.

Mr Palmquist acknowledged a big drop in likely sorghum yields in northern NSW and Queensland unless good rainfall was received by mid-March.

All of what was harvested was likely to be sold direct to hungry domestic livestock feed buyers, by-passing the trade.

The bulk handler had also moved considerable tonnages of southern NSW and Victorian winter crop to grain buyers in the north and had "imported" about 1 mln tonnes of West Australian winter crop.

The in-bound shipments included canola for crushing and oil production in Victoria.

“We expect at least another two months of imports, but so far have not had to reach out to overseas to find supplies - although we will see where this ends up,” he said.

The diminished Australian canola harvest - down from 3.7 mln tonnes in 2017 to 2.1 mln last season - had also eroded GrainCorp’s potential oil division earnings, but he said the company anticipated increasing opportunities in the feed meal market and was “looking at areas where we can improve this business”.

Unfortunately, its newly upgraded Numurkah crushing plant in northern Victoria had not yet had the chance to run to capacity to deliver meal and oil at peak efficiency.

“Our whole team is really working hard to manage the current seasonal volatility and we appreciate having processing businesses which can assist in improving our cash flow,” Mr Palmquist said.

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