- Barley is a cereal grain commodity used in making beer, whiskey and other beverages, and as a livestock feed.
- You can invest in barley by trading in agricultural shares, grain ETFs, barley and grain exchange traded notes (ETNs), as well as in commodity futures and options, through CFDs (contracts for differences), and spread betting.
- Your barley investments can help with portfolio diversification and work as a hedge against inflation.
Barley is a nutritious cereal grain packed with vitamins and minerals. It is widely used as a livestock feed and is a key ingredient in the making of whiskey, beer, and non-alcoholic drinks. This makes barley an important agricultural commodity in global markets, and thus an attractive investment.
If you are interested in investing in barley from Canada, read this guide to find out how.
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Benefits of investing in barley
Food commodities never go out of demand. As long as people need meat and drink alcohol, there will be a significant and continuing demand for barley.
Beer, whiskey and beef markets are on a growth trend in global markets.
Global beer market size is estimated to grow at an annual CAGR of 3.68% for the period 2021-2028. Global whiskey market is expected to grow at a CAGR of 4.9% between 2020 and 2027. As a key input for both these industries and into livestock feed, barley will have a demand which makes it an attractive commodity for investors.
Demand for barley is expected to grow, especially in emerging economies like China and Saudi Arabia and therefore, can be used as a hedge against inflation as well as for portfolio diversification. Increasingly health-conscious consumers are also being attracted to barley for its health benefits.
Risks of investing in barley
The demand for barley depends on the demand for beef, alcoholic beverages, and health drinks.
Compared to the demand for rice and wheat, both of which are food staples, the demand for barley largely depends on economic growth rates and the well-being of those consuming beer, whiskey and beef. This demand may be affected by global or regional economic slowdowns.
Investing in barley is like any other investment. You are taking some level of risk and may stand to lose some or all of your invested capital as a result.
Not sure which investment instrument is best?
Ways to invest in barley
Retail investors cannot invest in barley physically. However, you can invest in the commodity markets for barley in a number of ways.
- Agricultural shares. Although there are no public companies with a sole focus on barley production, you can invest in companies that engage in growing and business activities related to various grains including barley.
- Exchange Traded Products (ETPs). ETP is an umbrella term that is often interchangeably used with the ETFs (Exchange-Traded Funds), a more common term people are familiar with. ETNs (Exchange-Traded Notes) and ETCs (Exchange-Traded Commodities / Currencies) are types of ETP.
- Grain ETFs. Although there are no ETFs with a sole focus on barley, investment exposure to barley can be achieved by investing in grain commodity ETFs.
- Grain and barley ETNs. Always remember you are buying an instrument, not the real grain, because an ETN is essentially a bond, an IOU, or debt note.
- Barley commodity futures and options. Large scale futures contracts and options involve large volumes of physical barley grain and are not meant for retail investors. They are high-risk investments with various fees associated with future and option trading in commodities including broker commissions as well as exchange and clearing fees. More experienced retail investors looking to invest in barley could consider CFDs. These mirror movements of physical grain prices and do not involve physical barley stocks.
Shares
Buying a share of a public listed company gives you a slice of ownership of that company. You may get dividends if they make profits and you can vote in their decision making process, at the annual general meetings. If the company makes losses in any one year, or does not declare dividends, you get nothing for that year.
You can buy shares of public listed companies by opening a share dealing account with an online investment platform. You may choose to own the shares directly or pool your investment with others and buy shares in an investment fund.
Pros
- Grow with the economy. As an economy grows, and companies flourish, your investment yields can grow.
- Hedge against inflation. Historically, over the long term, stocks offer a generous annualised return that’s higher than the inflation rate. However, if yields drop below inflation rates, there is nothing to prevent you from buying and holding them till returns and valuations improve.
- Easy to buy and trade. It’s easy to buy shares with a share dealing account.
- Begin investing with small amounts. Most retail brokers will let you buy and sell stocks commission-free up to a certain limit and may not ask for account minimums to begin investing. Online trading platforms offer a lot of flexibility too. And if you find shares that are really good picks, but are too expensive for you, you can buy fractional shares (if your broker or platform allows it).
- Offers two ways to earn money through price appreciation and dividends. Speculative investors plan to buy low and sell high, and invest in shares of fast-growing companies that would appreciate in value. This works for both day traders and buy-and-hold investors. The former plan to benefit from short-term trends. The latter has expectations of increased company earnings and stock prices that grow over time. Investors that wish for a regular stream of cash by way of dividends can choose those with a consistent record on dividends, which often are companies that grow at a moderate rate.
- Liquidity. Most share investments are liquid, in that you can sell them at any time to convert them into cash. This can be achieved quickly and with very low transaction costs.
Cons
- You take on a high level of risk. Individual shares come with a level of risk that can impact you if the company performs poorly or the market drops as a whole.
- Lack of diversification. Investing in individual company shares does not help you diversify your investment portfolio unless you also invest in shares of several other companies in varying industries, which requires more money and research.
- Time needed for research. Trading in stocks on your own is a time-intensive operation. You need to research and find potential profitability, study financial reports and dividend records, and follow news about the company and its development, as well as what happens in their industry. Speculative investors need to monitor price fluctuations in order to sell at the most advantageous price point.
- Tax implications. Selling shares at a loss may entitle you to a tax break. But selling shares at a profit may make you liable to pay capital gains tax.
- Emotional highs and lows. Because stock prices constantly change, it can be an emotional roller coaster.
ETFs
ETFs are financial instruments that enable you to invest in a wide range of shares or bonds in one package. So when you invest in ETFs, instead of buying shares or bonds of one company, you are effectively buying an investment in a fund that invests in many companies. As such they offer a great way to diversify your investment portfolio and spread your risk.
An ETF typically tracks specific markets like the FTSE 100 or the Bloomberg Grains Subindex. They are similar to index funds which also track the performance of a market. The difference is in how they are traded and the fees. ETFs can be traded directly on the stock market just like shares or bonds. This makes them liquid investments you can buy or sell any time you wish, unlike other funds which are only traded once a day.
Pros
- Diversification. Since an ETF invests in a number of assets, investing in an ETF is more diversified than investing in individual companies.
- ETFs are liquid investments. They are tradable on stock exchanges.
- They offer you flexibility. You can go long on ETFs, sell them short, and buy them on margin. You can also buy and sell options on ETFs.
- ETFs offer transparency. In most cases, it is possible to see what the ETF holds inside their portfolio on a daily basis.
Cons
- Intraday pricing. Only frequent traders can benefit from short term price movements.
- Higher costs. When you compare trading ETFs with trading in other funds, costs are similar. However, when compared to investing in a specific stock, ETF investing costs are higher. Although the broker's commission might be the same, shares carry no management fees.
- Lower dividend yields. The yields in dividend-paying ETFs may not be as high as with high-yielding individual stocks or groups of stocks. Also, while it is possible for you to pick stocks with the highest dividend yields, with ETFs, because they track a broader market, the overall yield is likely to average out and be lower compared to a high yield stock.
- Currency risk. When a fund’s investments are in a different currency than it is denominated in — for example, if a base currency is USD but its portfolio exposure is to the Japanese yen — this introduces an additional element of currency risk that you must bear in mind.
- Skewed returns on leveraged ETFs. Leveraged ETFs are funds that use financial derivatives and debt in order to amplify the returns of their underlying index. Some double or triple leveraged ETFs may, in some instances, lose more than double or triple the tracked index. Carefully evaluate their value if you are investing in these speculative investments. And if these ETFs are held long term, their actual losses could quickly multiply.
ETNs
Exchange Traded Notes (ETNs) are unsecured debt instruments (bonds) that track the performance of an underlying market index. They are issued by large banks and financial institutions and have been developed to provide investors access to important and exotic securities like currencies as well as possible new markets including foreign markets.
You can redeem your ETNs at maturity for the value of the market index or sell them in the open market prior to maturity. If you sell your ETN at maturity or before and its sales price is greater than the price of the market index, you make a profit. Depending on whether you have held it for more than one year or less, you will pay capital gains tax at the long term or short term capital gains rate.
Investing in ETNs may involve a trading commission, depending on your broker. ETNs also have an expense ratio or management fee that is deducted from your total holding.
Pros
- Traded on stock exchanges, making them easy to buy and sell.
- Similar to trading in ETFs and stocks.
- Tax efficiencies. The entire gain is deferred until maturity or sale.
Cons
- Credit risk. Being debt securities issued by a financial institution, they will be impacted by the credit rating of that bank. A downgraded credit rating means your ETN could lose value even when the market index it tracks does not change.
- ETNs also carry tracking risk, which occurs when the ETN values differ from the index it is tracking. If there is a significant difference at maturity, you could face a loss.
- ETNs may be illiquid since they are not as popular as shares and ETFs, i.e. there may not be a demand for them when you need to sell.
- ETNs have default risk if the issuing bank is unable to pay back your principal at maturity. Political and regulatory changes contribute to this default risk.
- If ETNs are "called" and then redeemed by the financial institution before maturity, you take a loss if the sale price happens to be lower than the purchase price.
- Trading commissions can eat into yield.
- Expense ratio/management fee is deducted from total holding.
Futures and options
Futures and Options are both types of derivative instruments.
Futures contracts or futures are transactions that must be made at a predetermined future date and price. When the expiration date comes, you must buy or sell that underlying asset at that previously agreed price. The typical duration for a futures contract is three months or less. Future contracts can be useful for speculation or to hedge the price direction of many things such as commodities, stocks, other financial instruments, forex (currencies), and cryptocurrencies.
Options offer the right to buy or sell something at a set price on a set date. They can be exercised by buying or selling the underlying asset at the previously agreed price, or left unexercised if that suits you best.
To trade in futures and options in Canada you need to find an online broker that will meet your needs. Unlike stocks, bonds and other traditional assets with many alternative means of buying and selling, there are only a few online platforms that let retail clients trade in futures and options.
Pros
- Easy pricing, high liquidity and risk hedging.
- Futures and options are traded on margin, which enables investors to control relatively big investment positions against a small initial outlay.
Cons
- They are complex derivative instruments and typically carry higher levels of risk compared to stocks, bonds and cash investments.
- Lack of control over future events.
- May have significant price fluctuations.
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Where to invest in barley
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First time investing?
How to invest in barley
Step 1: Decide on an investment instrument
First, decide on what investment instrument you want to invest in. Depending on the instrument, your choice of brokers would differ as not all brokers offer all of the relevant products.
Step 2: Choose a broker
There is a wider range of choices if you want to invest in shares or ETFs, but if you plan to invest in futures and options via CFDs or spread betting, you can only do this via a few online-only platforms.
Factors to consider when choosing a broker include:
- Trading fees, deposit and withdrawal fees, inactivity fees, monthly account fees, plus fees and subscriptions to access premium features.
- Minimum deposit required to open an account and available funding methods.
- Minimum trading volumes.
- Whether margin trading is allowed.
Step 3: Decide how much to allocate
There is a certain level of risk when investing and you may — in the worst case — lose all or part of your invested capital.
As a rule of thumb, more complex derivative instruments like futures and options carry a higher level of risk for investors compared to investing in stocks and ETFs.
Because prices can go up and down, you should only invest what you can afford to lose.
Step 4: Deposit funds
Check with your broker or platform what funding methods are accepted and the minimum deposit they require.
Depending on the broker or platform, you can add funds with a bank transfer, debit card, credit card, PayPal, or digital wallets. You may want to pick a broker that allows the most convenient method for you. How long it takes for deposited funds to clear may vary depending on the method used.
Step 5: Configure an order
Most brokers offer a number of different ways to configure an order. Market orders (which require practically no configuration or previous experience) are the easiest. If you have a trading strategy or want to buy at a certain price, you can use a trigger order to enter a trade.
Step 6: Place the order to buy
When you are comfortable with your chosen trading instrument and investment strategy and have the funds in your trading account, you can place an order.
After you invest
What affects the price of barley
- The global demand for whiskey, beer, and beef production.
- Adverse impacts of climate change on grain producers.
- Demand from those pursuing healthy beverages and cereal grains.
- Demand for barley from emerging economies due to increased demand for alcohol and beef.
- Development of drought-resistant and weather-resistant strains of barley.
- Potential changes in existing subsidies for barley production.
- A global economic downturn lowers the demand for barley while a flourishing global economy will increase demand.
Even though there is an overall upward trend in barley prices over the long term, this trend may not necessarily continue. It all comes down to supply and demand dynamics. Commodity prices can swing up or down in unexpected and dramatic patterns. Be ready with an exit plan and the necessary funding to change your position, should it be necessary to do so.
