Market of Ukrainian rye and rye flour in the first half of 2016/17 MY - production and imports

Source

APK-Inform

2941

 

During 5 recent years, Ukraine decreased the general production of rye in 1.7 times due to significant reduction in the grain planted areas. Such trend contributed to a deficit of raw materials supply on the domestic market, and growing of the import volumes of rye, which in turn somewhat strengthened prices in the reporting market segment, and lowered rye flour production. Therefore, there is a question: whether the reporting factors will trigger further increase of rye planted areas?

 

Key points

According to APK-Inform analysts, during 5 recent years the planted areas under rye in Ukraine reduced in more than 2 times, meanwhile the production of rye in Ukraine decreased from 677 thsd tonnes in 2012/13 MY to 392 thsd tonnes in the current season (down 42%). Also, in 2016/17 MY Ukraine managed to compensate the reporting reduction of planted areas with the average yield increase, which reached almost 2.73 t/ha. In turn, the domestic consumption decreased from 550 thsd tonnes to 450 thsd tonnes.

 

Milling rye production in Ukraine

 

2012/13 MY

2013/14 MY

2014/15 MY

2015/16 MY

2016/17 MY*

Planted areas, `000 ha

303

284

188

152

143

Yield, t/ha

2,27

2,28

2,58

2,59

2,73

Production, `000 tonnes

677

638

478

391

392

* Forecast

Hereinafter source: APK-Inform Agency

 

Due to the systematic decline in rye production in Ukraine for several recent seasons, grain processors faced the fact that they have to work in terms of supply deficit. As a result, in the current season Ukraine significantly reduced the exports, and broke a record in rye imports. Thus, in July-January period of 2016/17 MY Ukraine supplied 329.7 tonnes of rye on foreign markets (in particular, Belarus, Poland and Austria), against 13.8 thsd tonnes and 15 thsd tonnes in the similar periods of 2015/16 MY and 2014/15 MY, respectively. At the same time, the import volumes totaled 1.3 thsd tonnes, against 28 tonnes in July-January of last MY. However, in the second half of 2015/16 MY the imports of rye significantly increased, and totaled 15 thsd tonnes, with Belarus as the key country-supplier.

For example: during the whole 2014/15 MY the import volumes totaled 11.9 tonnes only, and the exports reached 22 thsd tonnes. As a reminder, last season Ukraine supplied 19.4 thsd tonnes of rye to the following destinations: Bangladesh, South Africa, Israel, Egypt and Lithuania.

As for the market segment of rye flour and, and the domestic demand, it should be noted its significant reduction. In July-January of 2016/17 MY Ukrainian enterprises produced 6.1 thsd tonnes of rye bread, down 55% compared with the same period last season (13.7 thsd tonnes). Therefore, the demand for Ukrainian rye flour was quite low. In addition, imported flour made high competition. So, in July-January of 2016/17 MY the import volumes of Belarusian rye flour to Ukraine totaled 23.6 thsd tonnes, against 252 tonnes only in the same period last season.

 

Price situation

The price situation in the rye segment mainly faced low volatility rates. In addition, the pricing factors in the reporting market segment included reduction of the planted areas under rye, some decrease of interest in the grain from export-oriented companies, as well as the situation on various adjacent markets.

At the same time, the policy of sales containment became the key factor in price growth in the reporting market segment. Thus, most agricultural producers noted a sufficiently high demand for the grain, and decided to sell small-scale grain batches only, while gradually increasing the offer prices. As a result, at the end of 2015/16 MY the bid prices for rye rose from 2`600-3`100 UAH/t CPT to a record level of 3`900-4`250 UAH/t CPT, which is similar to the cost of feed wheat, which purchasing prices varied within 3`600-4`300 UAH/t CPT.

After coming of rye volumes of the harvest-2016 on the market, the purchasing prices decreased by nearly 500-650 UAH/t - to 3`400-3`600 UAH/t CPT. However, the seasonal decline was short-run, and since the middle of August 2016 the prices started gradually increasing until March 2017. At the same time, representatives of grain processing enterprises often reported about difficulties with formation of the required volumes of milling rye. To date, the bid prices usually vary within 3`550-4`000 UAH/t CPT. In turn, agrarians sell large-scale lots of rye with high-quality indicators at the average prices of 3`800-4`200 UAH/t EXW. In most cases, grain quality indicators meet all GOST requirements (in particular, natural weight and falling number), and only some market participants reported about the presence of sprouted kernels.

 

In 2016/17 MY, the market segment of rye flour demonstrated unstable production rates of finished goods in terms of the deficit of raw materials supply, reduction of the domestic consumption of flour and bakery products in Ukraine, and high competition from Belarusian flour millers. So, at the end of last season the presence of cheaper Belarusian rye flour on the market resulted in 5% reduction in the price of Ukrainian flour, then in 2016/17 MY due to record high volumes of Belarusian flour imports, the reporting factor made even more significant impact. As a result, several Ukrainian flour producers reoriented to produce other types of products, because they were unable to reduce the production cost of rye flour in terms of the gradual increase of prices for raw materials and tariffs for energy resources.

In the first half of 2016/17 MY, the rye flour sector faced a gradual bearish trend, due to the increased competition rates among grain processors (in particular, due to the active supply of Belarusian rye flour), as well as rather low demand of consumers. So, since late July to December 2016 the selling prices gradually decreased from 4`900-6`400 UAH/t EXW to 4`550-5`800 UAH/t EXW. In turn, the average offer prices were less volatile, and in the first half of the season they varied within 5`000-5`200 UAH/t EXW.

To date, the prices for rye flour increased to 4`700-6`000 UAH/t, due to the growth of price for raw materials and production costs, as well as rising prices on the adjacent market of wheat flour. In most cases, market operators estimated the demand for finished goods as moderate.

 

Expectations and forecasts

In the current season, the prices for rye are comparable to the prices for feed wheat, and many agricultural producers revised their attitude to the reporting grain and made changes to their structure of planted areas. According to statistics figures, to date the planted areas under winter rye total nearly 170 thsd ha, up 19% compared with the planted areas for the harvest-2016. Taking into account the monitoring data of winter rye condition, we can say that rye sprouts appeared throughout over 97% of the planted areas. At the same time, most sprouts were in good and satisfactory condition, and only 10.1% of sprouts were weak and thinned. During several recent seasons, Ukraine faced a positive dynamics in rye yield (up nearly 5% per year), which will cause some growth in rye production in 2017.

In the short term, most market participants expect for further growth of prices for rye and by-products, due to reduction of the stocks and low sales by agrarians.

 

Anna Tanskaya, APK-Inform Agency

 

Comment from APK-Inform analyst, Andrei Kupchenko

As for the prospects of rye market in the new season, we can note positive expectations for rye production in 2017. Taking into account that winter rye forms 99% of the grain production in Ukraine, the future harvest can be forecasted by analyzing the results of rye wintering and further development. According to the Ministry of Agrarian Policy, Ukrainian agrarians planted winter rye for the harvest-2017 throughout 169.4 thsd ha, up 19% compared with the current season. At the same time, rye sprouts appeared throughout 165 thsd ha (97%). Also, winter rye areas are quite consolidated. More than 67% of the areas are concentrated in four oblasts of the Polesye zone: Volyn, Zhytomyr, Rivne and Chernihiv. As of the end of February 2017, more than 8% of the rye areas in the reporting oblasts were in weak and thinned condition. Less than half (49%) of crops were in good condition. Thus, it is premature to discuss possible increase of rye yield and its production volumes.

Despite the positive price dynamics, rye is a crop with low specific profitability. It is largely due to the low crop yield, which is significantly lower to the main agricultural crops. Therefore, the current growth of planted areas can be considered in standard terms of crop rotation, and estimated as situational one. Also, the important factor is a decrease of demand in terms of low marginality of flour milling enterprises and reduction of rye bread production.

 

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