Market comment april 2017


Rye scarce and expensive in some regions

The grain-marketing season 2016/2017 is coming to an end. In many establishment farmers are planning sales of remaining batches. Some farmers are still speculating for the scarce supply situation of regional processors until the new harvest 2017. The supply situation within the Rye Belt is varied. While supplies will continue to increase in the Eastern Rye Belt following an excellent 2016 harvest, in the Western Rye Belt stores will be cleared by summer after the weak 2016 harvest. Despite the differing supply situations, both regions are following the world market trends.

In Chicago and Paris a downward trend has been observed since the beginning of March. In Chicago, May wheat dropped by 14 $/t to 149 $/t and in Paris by 10 €/t to 162 €/t. The reason for the price decline is the increasing competitive pressure on the world market. Increasing price pressure is also expected for the Southern hemisphere. The Australian record harvest of 52 million tons (37 million tons in the previous year), the Argentine harvest of 67 million tons (60 million tons in the previous year) and the Brazilian maize harvest of 89 million tons (67 million tons in the previous year) are exerting pressure on the market. Part if these crops, together with the harvest from the Northern hemisphere, will still be fighting for the favour of the importing countries in autumn. In addition, stores are still piling up in the USA and in Russia.  Stores in the USA are expected to increase in the course of the current marketing year by 19 million tons to 94 million tons, and in Russia by 6.5 million tons to 14 million tons. Following the implementation of import duties for Russian wheat of 130% by Turkey, Russian exporters will have to find new markets. Turkey has been an important buyer of Russian wheat in recent months. This shows once more that the complicated political situation in the Middle East has a negative impact on agricultural trade. Turkey is now expected to buy wheat in the Ukraine, Hungary and the Baltic countries. All in all, the changed trade flows will cause more costs for handling and shipping, without even a single additional gram of wheat being sold. The regions are currently far away from free world trade.

In Russia, the world market pressure has caused a strong price decline. Since the beginning of March, the price for bread wheat has dropped by 9,350 RR/t (153 €/t) to 8,630 RR/t (141 €/t). The price for feed wheat, which is dependent on domestic demand, has dropped by only 280 RR/t (5 €/t) to 6,400 RR/t (105 €/t). Private analysts' export expectations for the entire year are differing significantly from those of the Ministry of Agriculture. While the ministry assesses the grain export volume to be approx. 34 million tons, private analysts' opinions range from 35.5 to 36.5 million tons.  Should the ministry's expectations be correct, significant price pressure will be exerted on the coming harvest. The rye price has followed the trends of the wheat market. On average, the price has dropped by 7,250 RR/t (119 €/t) to 6,560 RR/t (107 €/t) in Russia. Thus the rye price is slightly higher than the price for feed wheat and rye will be sold only for flour and alcohol production. In the second year in a row, Russian rye consumption has dropped considerably, reaching only 2.2 million tons after 3.2 million tons in 2013/14 and 2015/16. In Russia, human consumption increasingly tends towards wheat. Without price impulses from the world market, no trend reversal is to be expected until the 2017 harvest.

In the Ukraine, however, grain prices and Grivna have been holding almost steady in the past weeks. In mid-April, 4,900 UAH/t (171 €/t) was being paid for bread wheat, 4,480 UAH/t (157 €/t) for feed wheat and 3,930 UAH/t (138 €/t) for bread rye. Thus rye is 550 UAH/t (19 €/t) cheaper than feed wheat in the Ukraine. Despite the low supply available, rye remains a low-cost feed for compound feed plants. The economic disadvantage in pig and dairy cow feeding compared to wheat is merely 150-230 UAH/t (5 - 8 €/t). Thus rye is underrated by 320-400 UAH/t (8-11 €/t). The Ukrainian grain market's price level is similar to neighbouring Poland, where the market remained also stable in the past weeks. In mid-April, 705 PLN/t (165 €/t) free processor was being paid for bread wheat, 690 PLN/t (162 €/t) for feed wheat, 615 PLN/t (145 €/t) for bread rye and 605 PLN/t (142 €/t) for feed rye. This year, hardly any price differences between bread wheat and feed grain have been observed in Poland.  Following a production increase by 2 million over the previous year, Poland is strongly export oriented in the marketing year 2016/17.  Compared to the previous year, Poland was able to increase exports via the ports of Szczecin, Gdansk and Gydingen by 10% to 4.3 million tons. Strong exports continued in the first three months of 2017. Exports to Germany, however, are declining sharply having already dropped by 22% to 800,000 t. Due to the improved handling in the Polish ports Polish commodity is no longer taking a detour via Rostock port. In contrast to wheat, Polish maize is mostly exported to Germany. According to information from the Polish BGZ BNP Paribas bank, exports to Germany amounted to 600,000 t in 2016. The Polish grain market is said to be almost sold out. Because of the low price difference on the rye market, only a small amount of rye exports from Poland to Germany is to be expected. In the Eastern German production regions, prices ex station are ranging widely from 125 to 140 €/t, with price quotations varying widely, too. While farmers' wheat price quotations diverge by approx. 5 €/t, regional differences for rye in Eastern Germany range from 15 to 20 €/t. In contrast to wheat, the price movements of which farmers can follow in Paris on a daily basis, market transparency is lacking for rye. In addition, rye marketing is neglected by many establishments. Due to its use in ethanol and compound food plants, rye supply has declined. Bread rye is scarce in Western and Southern Germany. Along the River Rhine, between 170 and 175 €/t is being paid for bread rye free mill, and 175 €/t in Southern Bavaria. In some parts of Southern Germany, bread rye is now more expensive than wheat. In contrast to the German market, the rye price in Denmark has declined. In March bread rye dropped by 60 DKK/t (8 €/t) to 1,085 DKK/t (146 €/t) and feed rye by 80 DKK/t (11 €/t) to 1,005 UAH (135 €/t). Compared to feed wheat, rye is trading at a high price. While for bread rye the same price level is being paid as for feed wheat, feed rye is selling for 80 DKK/t (11 €/t) less. This is the lowest price difference in the Rye Belt. Thus, feed rye achieves a fair price. 

In many regions of the Rye Belt, rye stores have been more or less depleted in recent months. Rye is sought after in many regions, with particularly strong demand in the Western Rye Belt. This is why we can expect the rye price to hold stable in the coming weeks. The development in Russia, however, has shown that the rye market could not but follow the leading wheat market. For marketing of remaining batches it is recommended to get several offers from regional and supra-regional trading companies, because there is still a strong variance in price offers.

Prof. Dr. Reimer Mohr
Hanse Agro GmbH

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