Market comment may 2017


Booming market in the Rye Belt

The old doctrine "supply and demand determine the price" has been decisive for the development on the rye market. 2 months before the new harvest, rye is almost sold out in some parts of Germany. Along the River Rhine the rye price free mill of 180 €/t and in Southern Bavaria with 174 €/t has overtaken the price of bread wheat. In the eastern German production regions, the price ex station has passed beyond the 150 €/t threshold. Thus rye is achieving a very good storage yield. During the 2016 harvest rye was trading at 115 to 120 €/t. There are also a few instances of prices set at 110 €/t. Because of the cheap prices during the 2016 harvest, rye was swiftly bought by bioethanol and biogas plants. There were also times when the price difference of 20 €/t made it profitable to use rye in compound feed rations. Because of the currently scarce supply, the price difference between feed wheat and feed rye has dropped to 10-12 €/t in the processing regions in Northwestern Germany, with feed rye trading at 168 to 170 €/t. The rye market in general and the bread rye market in particular are nearly sold out towards the end of the marketing year. The market has been cleaned out in neighbouring Poland too, where the price free processor is ranging from 600 PLN to 620 PLN/t (140 - 150 €/t). Consequently, exports to the West are not attractive. However, the price difference between wheat and rye of 90 to 115 PLN/t (20-27 €/t) is rather high. Feed wheat is scarce and expensive in Poland and trading at the same price as bread wheat. Consequently, it remains profitable to use rye for feeding in Poland towards the end of the marketing year. The Ukrainian grain prices are slightly below the price level in Poland. 4,850 UAH/t (167 €/t) is paid for bread wheat, 4,480 UAH/t (154 €/t) for feed wheat and 4,085 UAH/t (140 €/t) for bread rye. In Poland and the Ukraine the grain markets saw minor price fluctuations, but were rather quiet in April and Mai 2017. Due to the low wheat exports, the Russian market shows a downward trend. Market supply with good wheat qualities is scarce. This shows in the high price difference between feeding and baking qualities. While 8,470 RR/t (137 €/t) is paid for bread wheat, feed wheat is traded for 6,460 RR/t (104 €/t). Thus the price is even below the price of bread rye of 6,520 RR/t (105 €/t). Consequently it is to be expected that the increase in Russian wheat stores of 5 million tons projected for the 2016/2017 marketing year will mostly be feed quality. The rye market, too, stagnated in the past weeks. In early May, rye flour was trading at 12,000 RR/t (193 €/t) free mill in the Moscow regions. At the same time, rye flour in the Volga region traded for 10,850 RR/t (175 €/t). Positive price signals are not to be expected in the coming weeks. As a consequence of the low grain harvest, domestic stores are dwindling in Denmark, as the price increases for bread and feed grain demonstrate. Price for bread wheat has increased from 1,185 DKK/t (160 €/t) to 1,235 DKK (167 €/t), for feed wheat by 50 DKK/t (7 €/t) to 1,125 DKK (152 €/t), for bread rye also by 50 DKK/t (7 €/t) to 1,135 DKK/t (153 €/t) and for feed rye by 30 DKK/t (4 €/t) to 1,035 DKK/t (140 €/t). With a price difference of 13 €/t feed rye remains attractive for feeding.

In its May report, the U.S. Department of Agriculture (USDA) published its first forecast on the worldwide 2017 harvest. Following the record harvest of the previous year, the USDA expects a worldwide production decline by 61 million tons to 2,050 million tons. Consumption is supposed to rise by 3 million tons to 2,085 million tons. This would result in a decline of stores by 35 million tons to 480 million tons. The store to consumption ratio will remain a comfortable 23 % (24.7 % in the previous year). According to this forecast, worldwide supply will be secure in the coming year. The USDA expects different developments for the individual types of grain: While maize stocks are expected to decrease by 29 million tons and barley stores by 7 million tons, wheat stores are expected to increase by 3 million tons. China, however, plays a predominant role in grain storage. While wheat stores are expected to increase by 17 million tons, maize stores are to decrease by 19 million tons. When looking at the balance without China, wheat stores will decrease by 14 million tons and maize stores by 10 million tons.

The USDA expects a slight worldwide rye production increase by 0.6 million tons to 13.1 million tons. US analysts expect a production increase in the EU 28 by 400,000 tons to 7.9 million tons, in Russia by approx. 300,000 tons to 2.8 million tons and in the Ukraine by 60,000 tons to 450,000 tons. For North America, however, a decrease by 150,000 tons to 602,000 tons is expected. Because of the additional supply, the Rye Belt expects a slight increase in consumption in the EU 28, Russia and the Ukraine by 500,000 ton to 13.2 million tons. The U.S. Department expects a slight decrease in stores worldwide by approx. 30,000 tons to 1.33 million tons. Stores in the EU 28 are supposed to increase by 50,000 tons to 847.000 tons, while they are expected to decline by 45,000 tons in Russia and by 20,000 tons each in Belarus and the Ukraine. This would be the third year in a row where worldwide stores are running low. This is also demonstrated by the store to consumption ratio of 10%. The stock as per 30 June 2017 is regarded as transitional stores between the 2016 and the 2017 harvests.

In March, Coceral (European association for trade in cereals) published a detailed estimate, according to which a production of 7.9 million tons (following 7.7 million tons in the previous year) on an area of 2.1 million ha (2 million ha in the previous year) is expected for the EU 28. The estimate is in line with the USDA's May forecast of 7.9 million tons. For Germany Coceral expects a decline in the area sown by 29,000 ha to 546,000 ha and a production decrease by 230,000 tons to 3 million tons. In Poland, however, production is supposed to increase by 300,000 tons to 2.5 million tons and in Denmark by 150,000 tons to 720,000 tons. Despite the increase in production and the slight increase in EU rye stores by 50,000 tons, rye will remain scarce in the coming year. In the two previous years, stores had decreased by a total of 600,000 ton. This first forecast in the middle of the vegetation period leaves still a lot of question marks.
The current stores are mainly transitional stores until the new harvest.  In contrast to the wheat market the rye stores in the Rye Belt are running low. This is an excellent precondition for another year of good rye prices. In the coming weeks, the price difference between rye and wheat should serve as a basis when closing rye supply contracts. When the price difference is 10 to 15 €/t there are good reasons to sell rye and store wheat. Rye is underrated, however, when the price difference is 20 to 25 €/t. In this case it is recommended to sell wheat and store rye.

Prof. Dr. Reimer Mohr
Hanse Agro GmbH

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