Market comment january 2017


Upwards in the east, holding steady in the west   

While the wheat price in the eastern Rye Belt is moving laterally, prices on the rye market there are rising. Once more the varying regional supply situation confirms the principle that "supply and demand determine the price". As it has not been profitable, rye growing has been limited in Russia and the Ukraine in recent years and this has lead to scarce supply for the rye mills in some regions. The scarce supply situation on the regional rye market is offset by the excellent supply situation on the worldwide grain market, which keeps grain prices low. 

The turn of the year from 2016 to 2017 was very quiet on the worldwide grain markets. The importing countries are buying the required quantities from the exporters' overflowing grain stores. The most recent grain assessments by the United States Department of Agriculture (USDA) dated January 12, as well as by the International Grain Council (IGC) on January 19, confirm their cautious purchasing policy. Both organisations expect worldwide stores of 507 million tons by 30 June 2017. The ratio of stores to consumption is therefore at a comfortable level of 24.6 %. Worldwide stores are expected to be sufficient for 3 months. However, 40% of worldwide stores, i.e. 202 million tons, are stored in China alone, while 35 % of worldwide stores, i.e. 177 million tons, are probably stored in the exporting countries. The Council has increased its latest stores estimate by roughly 8 million tons. Stores in Australia were increased by 2.4 million tons, in Russia by 2.3 million tons, in the Ukraine by 0.9 million tons, in the EU-28 by 1 million tons and in Canada by 0.7 million tons. Competition for customers in Africa and Asia will remain harsh in the coming months. There is plenty of wheat with low baking quality available on the world market, while good bread wheat is scarce. The high prices for Dark Northern Spring, the U.S. elite wheat, and for Hard Red Winter, U.S. quality wheat, are making that clear. In the U.S. export port Portland on the shores of the Pacific, buyers now pay 260 $/t for Dark Northern Spring with a protein content of 14%, and 200 $/t (190 €/t) for Hard Red Winter with a 12% protein content. In the Italian city of Bologna, American elite wheat is trading at 280 €/t, i.e. 40 €/t more than Austrian quality wheat with 15% protein and 79 kg/hl.

Trade is focusing on logistics right now.  Because of the low water levels and the ice drift in European inland waters from East to West, the transportation of grain and fertiliser is rather a challenge. Because of the lack of precipitation in autumn and winter, the Elbe, Danube, Main and Rhine rivers are reporting very low water levels and this is severely affecting the rivers' navigability. The river barges can load only part of their carrying capacity, which, in turn, makes freight rates more expensive. Because of ice drift, the Oder River was even closed for navigation at times.  In Serbia, Bulgaria and Romania, navigation on the Danube River has been banned by the authorities. Limited navigability makes the supply of the consumer regions in Western Germany and the processing regions in Belgium and the Netherlands more expensive. This leads to delays in delivery. Transshipment to trucks for transports to distant regions is very often too expensive. Because of the severe frosts at the beginning of the year in the Black Sea region, there is much speculation concerning logistical problems the ports there are experiencing. Already in early January, several Bulgarian and Romanian ports were closed due to storms. In order to fulfill export contracts it may become necessary to supply replacements from Western Europe and the Baltic States, which will cause price increases there. For the time being, temperatures in the Black Sea region of 0° to -5°C are rather mild. In many regions in Eastern Europe the winter grain is well protected by sufficient snow cover.

The rye market in the Rye Belt has uncoupled itself from developments in the wheat market. While in Russia the price for bread wheat at 9,300 RR/t (145 €/t) has remained stable, the prices for bread rye rose from 6,900 RR/t to 7,160 RR/T (112 €/t). Compared to feed wheat, which is traded at a price of 7,050 RR/t (110 €/t), rye has now become more expensive. In the central region around Moscow, the price of rye exceeds the price in faraway Siberia by 825 (13 €/t). This price increase is remarkable considering the fact that, in its January report, the USDA raised the Russian rye harvest by 240,000 tons to 2.54 million tons. With an expected consumption of 2.25 million tons, stores are set to increase by 270,000 tons to 400,000 tons. So far, the USDA has estimated stores at a very low 135,000 tons.  The expected easing of the market, however, is currently not reflected in the price trend on the Russian rye market. The latest price increase suggests that there are no "additional" quantities available on the market, or that they do not meet the quality requirements of the rye mills. Exports of Russian wheat have come to a standstill. Russian wheat lacks baking quality in this season and can be sold only at lower prices. In mid-January it was 5 €/t less than in the French city of Rouen.  In the Ukraine, too, the wheat market has been holding steady, featuring a price of 4,530 UAH/t (157 €/t), while bread rye has increased by 370 UAH/t (13 €/t) to 4,100 UAH/t (142 €/t). Thus, in the Ukraine too, the bread rye price lies slightly above the price for feed wheat of 4,008 UAH/t (141 €/t) also. This makes bread rye too expensive for feed in the Ukraine and in Russia. This is yet another sign of the tight rye supply situation, as already indicated in autumn. In its January report, the USDA confirmed the continuing extremely low stores of 70,000 tons for the Ukraine as per 30 June 2017. For the 2017 harvest, the sowing area is said to have increased. The first harvest forecast of 410,000 to 430,000 tons is slightly above the previous year's volume of 375,000 tons. 15,000 ha, however, are reported to be underdeveloped. Concerning the 2017 harvest too, one can expect that rye of good baking quality will be scarce in the Ukraine. In neighbouring Poland, bread rye is trading at a price of 530 to 580 PLN/t (120-130 €/t), which is significantly lower. It is therefore to be expected that, despite the difference in transport costs, some rye will be exported to the East.  In contrast to its eastern neighbouring countries, the rye price in Poland is markedly lower than the price for feed wheat, showing a difference of 100 PLN/t to 120 PLN/t (20 to 25 €/t), and thus very competitive for feed. Exports to Germany are hardly attractive this year, because almost the same price, i.e. 120 to 130 €/t, are paid in the East-German production regions. However, Polish rye continues to be traded to the ethanol plant in Schwedt in minor border traffic. At the beginning of the year, there was little movement on the German grain market, particularly in rye trading. The processors are well supplied for the coming weeks. Along the River Rhine, attractive prices of 160 to 165 €/t free mill continue to be paid. In Hamburg, where freight transport is cheaper, the price free processor amounts to 150 to 155 €/t. An interesting trend is starting to emerge in Denmark. Whereas in December, the bread rye price was 60 DKK/t (8€/t) lower than the feed wheat price of 1,125 DKK/t (151 €/t), prices converged markedly in January. A price of 1,105 DKK/t (149 €/t) is set for bread wheat, while 1,115 DKK/t (150 €/t) is paid for feed wheat. The price difference between bread rye and feed rye now amounts to 90 DKK/t (12 €/t). This also reflects the scarce bread rye supply in Denmark. In summary, we can state that the decline in rye cultivation over the past years has led to a scarce bread rye supply. In the Ukraine, Russia and Denmark, bread rye is trading at the same level as feed wheat. Storing bread rye was therefore economical in the first half of the marketing season. For the coming weeks, it is to be expected that rye with good baking quality will be much sought-after on the market.

Prof. Reimer Mohr
Hanse Agro GmbH

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