Market comment march 2017


Spring drive in export

Following a time of quiet optimism with prices holding steady, the mood on the grain markets started to change in mid-March. While the Western European market was holding steady, grain prices in overseas started to crumble. Since the beginning of the month, May wheat in the USA rose and fell by as much as 10 $, depending on weather reports from the wheat growing areas and successes in winning export tenders of purchasing countries. On 17 March May wheat was traded for 160 $/t in Chicago. US maize also showed price fluctuations of 10 $/t with an average price of 144 $/t; following the South American record harvest it still has to find its course. Because of the strong connection between the markets this development will transfer to the Rye Belt. With the onset of spring, the export markets show an increasing dynamic. After winter, more and more exporting countries around the globe are offering their grain. In addition, the U.S. State Department of Agriculture's March report about the development of grain and oil seeds supply and demand has sent new signals.

Record harvest in the Southern hemisphere

In its report dated 9 March the U.S. Department of Agriculture (USDA) increased its forecast for the worldwide grain production for the current trading year by 15 million tons to 2,093 million tonnes compared to their February forecast. The record harvest thus exceeds the previous year's harvest by 109 million tons. Due to record demand the record harvest finds its way to the market. Worldwide consumption is set to increase by 111 million tons to 2,074 million tons compared to the previous year. This is now the fourth year in a row where production exceeds consumption. As a consequence stores are set to increase by 19 million tons to 505 million tons compared to the previous year. The correction for the Southern hemisphere makes the current forecast so special. USDA analysts clearly increased their harvest forecasts for Australia, Argentina and Brazil. The Australian wheat harvest was increased by another 2 million tons to 35 million tons (24 million tons in the previous year) compared to the previous month's forecast. Production thus exceeds the 5-year average by 10 million tons. The Australian barley harvest has been even increased by 2.4 million tons to 13 million tons. After the end of El Nino in the past year grain grew under ideal weather conditions in many regions. In Argentina rains that lead to flooding in some regions improved the overall grain yield. This is why the U.S. Department of Agriculture (USDA) has increased the previous month's Argentine wheat production forecast by 1 million tons to 16 million tons (11 million tons in the previous year) and the maize production by 1 million to 37.5 million tons (29 million tons in the previous year). The Brazilian maize production forecast was even increased by 5 million tons to 91.5 million tons (67 million tons in the previous year). Compared to the previous year an increase in maize production by 31 million tons to 139 million tons and in wheat production by 5 million tons to 26 million tons is expected for South America.

Buyers' market

As high crop yields have been expected in the Southern hemisphere for many months this is not exactly new information for the market players. What has changed? The previous months' expectations have become reality. The Australian harvest is almost completed and in South America the weather risk is declining by the day. The importing countries can increasingly rest assured that they will be able to buy in the Southern hemisphere at good prices in the next months. All parties assume that the countries in the Southern hemisphere will increase their stores only to a limited extent and the largest portion will go into world trade. This market expectation is also reflected by the increased export data shown in the USDA report. The USDA has increased the previous month's Australian wheat export forecast by 1 million tons to 25.5 million tons (16 million tons in the previous year) and feed grain exports by 1 million tons to 9 million tons (6 million tons in the previous year). For Argentina, too, an increase in wheat exports by 1 million tons to 10 million tons (9.6 million tons in the previous year) is expected. Maize exports are to increase by 0.5 million tons to 25.5 million tons (21.7 million tons) and in Brazil by 3 million tons to 31 million tons (14 million tons in the previous year). Last year's harvest was very low in Brazil because of the continuing drought.

Development in the Rye Belt

The pressure from the high yield in the Southern hemisphere meets a high grain supply from the USA and Russia. Both countries can maintain their position on the world market only through the price. Even though it was expected to become number 1 exporting country on the world market with a wheat quantity of 28.5 million tons, Russia's sales figures are lagging behind expectations after the winter. According to reports from the Russian Ministry of Agriculture 24.6 million tons of grain were exported between July 2016 and February 2017. Despite the record harvest of 113 million tons (98 million tons in the previous year) this is 3.6% less than in the previous year. USDA expects a grain export volume of 37.5 million tons (34 million tons in the previous year) until 30 June. It is therefore expected that we will see more of Russia on the world market in the coming months. As grain stores in Russia are set to increase by 6 million tons despite the country's expected rise to number 1 wheat exporter,  price pressure is to be expected in the coming months. At the same time, the Russian rouble exchange rate against the euro and the U.S. dollar has increased by 3% since the beginning of the year. This leads to additional pressure on price development on the Russian domestic market. Recently bread wheat was trading for 9,350 RR/t (151 €/t) free processor. The price difference between bread and feed wheat is very high in Russia. In early March feed wheat traded at 6,680 RR/t (108 €/t), i.e. 210 RR/t (3.5 €/t) less than in the previous month. This already proves that good qualities are sought after. The rye market, by contrast, shows a slight upward trend: in the Western and Southern regions between 7.800 RR/t and 8.150 RR/t (125 and 130 €/t) have been paid free mill, i.e. 100 to 250 €/t more than in the previous month. In Western Siberia, however, the price was only 7,000 RR/t (113 €/t). Russia is already looking towards the 2017 harvest. Because of the record area sown of more than 80 million ha and only slight frost damage an excellent grain harvest is expected.

In the Ukraine, wheat and rye prices have been rising slightly. The price for wheat increased by 100 UAH/t (4 €/t) to 4,950 UAH/t (174 €/t) and for bread rye by 70 UAH/t (3 €/t) to 3,900 UAH (137 €/t). Thus the bread wheat price is higher than in neighbouring Poland. The price difference of 500 UAH/t (18 €/t) between bread and feed wheat suggest that bread wheat is scarce. Bread rye is cheap compared to feed wheat with a negative price difference of 550 (19 €/t). The high difference shows that despite its price worthiness in animal feed many farmers and compound feed plants have still reservations about its use. As a consequence, the rye mills have no fear that rye might be used in animal feed, the low harvest notwithstanding.

Above all in the North, the Polish grain market is heavily influenced by the outflow of commodities in the Baltic Sea ports. In recent weeks, however, the Polish farmers have been reluctant to sell their grain. They are concentrating on the upcoming field work. This lead to a slight increase in prices. At 712 PLN/t (166 €/t) the wheat price exceeded the 700 PLN mark and bread rye reached the 600 PLN/t (140 €/t) mark. During the past 4 weeks, feed rye rose by 24 PLN/t to 575 PLN/t (134 €/t). Because of the good domestic price level, hardly any commodities are exported to Germany.

In Germany, too, the rye price continues to recover. In the Eastern German surplus regions, prices ex station of 130 to 136 €/t are being paid. There are still a few offers for 125 €/t.  In the meantime, rye has become scarce along the river Rhine, where mills pay between 165 and 170 €/t free mill. In Northern Germany and Bavaria prices range from 155 to 165 €/t. As a whole, the German rye market has been very quiet in the past 4 weeks.

In Denmark, however, supply on the grain market seems to decline following a low harvest. This is reflected by the rising bread wheat prices, which increased by 40 DKK/t to 1,225 DKK/t (169 €/t), the prices for feed wheat increased by 30 DKK/t to 1,165 DKK/t (157 €/t), the price for bread rye increased by 60 DKK/t to 1,145 DKK/t (154 €/t) and for feed rye by 50 DKK/t to 1.085 DKK/t (146 €/t). The low price difference between feed wheat and feed rye suggests scarce rye supply in Denmark. With a feed value difference of 40-60 DKK/t (6-8 €/t) compared to feed wheat, feed rye is coming close to its price limit. Because of transport costs, the current price differences on the German market are not sufficient to make imports of larger quantities of rye from Germany worthwile.


Because of the extremely high harvest in the Southern hemisphere, no price impulses are to be expected on the world market. Because of the harsh competition, however, the pressure from the international market may transfer to the Rye Belt, above all for simple bread wheat qualities. The rye market price development is stable. Because of the scarce supply, price increases have been observed in some regions.  Despite the slight upward trend, it is recommended to continue selling stored commodities, thereby following the trend of the international market. Assuming good vegetation conditions the risk for stored grain will increase by the week.

Prof. Dr. Reimer Mohr
Hanse Agro GmbH

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