For 3 recent seasons, the Ukrainian market of rye and rye flour continued stagnating. It is especially difficult to get the idea, if one remembers that in the not so distant past, Ukraine was one of the global leaders in the production and exports of the grain. At the same time, 2018/19 MY brought some dynamism to the well-measured work of the market segment and surprised everyone with some price rally.
What features did 2018/19 MY bring, how did the work of the processing industry develop in terms of the deficit of raw materials, how did it affect the prices, and most importantly — what should we expect from the new season? The article focuses on the issues, as well as provides the figures, charts and comments.
Reduction of the production figures
The planted areas under rye in Ukraine, as well as its harvest volumes and carry-over stocks, started gradually declining after 2005. In that year, the planted areas under rye last time totaled more than 600 thsd ha, while at the best of times the figures reached 925 thsd ha, which provided the production volumes of 1.8 mln tonnes. In previous years, the planted areas under rye usually changed, due to various crop rotation rules, unstable export rates and the carry-over stocks, as well as the yield and production figures dependent on the weather conditions in a greater degree compared with the current level, from that time onward the reduction trend of the planted areas demonstrated the more systematic character. Thus, in 2006 the planted areas decreased in 1.8 times, in 2010 — down 1.6 times, and in 2014 — down 1.5 times. Periodically, Ukraine showed rather small upsurges in rye production, but they failed to reverse the general downward trend.
As a result, the market started forming the supply deficit, and the upward price trend became the dominant one in the segment. At the same time, and the needs of the domestic demand were compensated by the imports of products of Belarusian origin, which were often cheaper than the Ukrainian ones. The trend provided some pressure and slowed down the growth of prices on the domestic market.
According to forecasts of APK-Inform analysts, in 2019/20 MY the planted areas under rye in Ukraine will continue declining, and break a new historical minimum — 117 thsd ha, which in terms of the average yield of 2.73 t/ha, will provide the harvest volumes at nearly 317 thsd tonnes. According to the analysis of the main indicators of rye production in Ukraine, the market segment demonstrated the deficit of any significant progress in improvement of the yield figures. After increasing of the indicator in 2017/18 MY to nearly 2.97 t/ha, it unfortunately lowered to the average level for 5 previous seasons. Of course, it was much better than the range of 1.47-1.73 t/ha in the 2000s. Nevertheless, taking into account the price situation, it can bear evidence of the deficit of economic interest of agrarians in cultivation of the grain, which is determined by the selling price.
The low selling prices of rye and, as a consequence, unwillingness of most agrarians to work with the grain contributed to keeping of the reporting trend. With neglect of many factors of the global and domestic markets, the price situation in the segment of grain raw materials and by-products directly depends on the planted areas, yield and production volumes, taking into account the quality characteristics. And the price is the fundamental factor for agrarians.
Traditionally, the rye segment demonstrates relatively stable price dynamics, which in terms of decreasing of the yield indicator, does not allow to agricultural producers to get additional profit.
Taking into account the average yield and price dynamics of two recent seasons on the rye and wheat markets, the average hectare revenue from rye sales became 46% less compared with the same figures for wheat. For example, for 2 recent seasons the average offer price of rye in Ukraine became 25% lower compared with the price of wheat, and rye flour — down 22% compared with the price of 1-grade wheat flour. Only after the price increase in May 2019, the rye prices increased by nearly 13% compared with 2-grade milling wheat.
At the same time, the abnormal upsurge of prices of rye and finished products reached its peak shortly before 2019/20 MY.
Price situation in early 2019/20 MY
The harvesting campaign rates and beginning of arrival of the new crop grain on the market put some pressure on the price situation in the beginning of 2019/20 MY. At the same time, the offer prices decreased less actively compared with the bid prices, which according to agrarians, were unacceptably low. Most agrarians did not hurry to sell the large-scale batches of new crop rye and expected for the higher prices.
So, if in the beginning of July 2019 the bid prices of rye of the harvest-2019 mainly varied within the range of 5`000-6`000 UAH/t CPT, then in early September they lowered to the level of 4`250-5`400 UAH/t CPT. At the same time, only single representatives of the grain processing industry announced the maximum prices, while the minimum prices in some cases reached 3`500 UAH/t EXW or with delivery to elevator. We should note that the offer prices of organic rye mainly varied within the range of 7`000-10`000 UAH/t EXW.
In most cases, the qualitative features of new crop rye met the requirements of the State Standard (GOST). Once in while, there was some information about the presence of grain with the insufficiently high index of natural weight and the falling number.
The prices of rye flour started declining somewhat later. The current situation developed, because most grain processors continued working with the previously formed stocks of rye (including the imported volumes), and sold the batches of rye flour with the high prime cost, due to the high cost of raw materials. At the same time, decreasing of the consumer activity in the market segment, after a sharp increase of the selling prices, provided some pressure on the prices.
Thus, in late July-August the selling prices in the market segment significantly decreased. The companies, which already formed the necessary stocks of the grain, and resumed the production of rye flour, mainly sold the finished products at the prices of 7`000-9`500 UAH/t EXW. In turn, the grain processors, which sell flour made from more expensive raw materials, raised the prices to the range of 10`500-12`000 UAH/t EXW. The reduction of the cost of finished products and the seasonal increase of consumer activity contributed to the growth of trading and purchasing activity rates in the market segment.
Prospects of rye, rye flour and bread
Taking into account the above-mentioned factors, the rise of prices of rye and rye flour in terms of decreasing of their production causes the similar reduction in the production of rye bread by large-scale baking enterprises of Ukraine. Thus, in 2018/19 MY the production of rye bread in Ukraine decreased by 34% compared with 2017/18 MY.
In turn, the reduction of rye bread production in Ukraine contributed to decreasing of the imports of rye flour. In 2018/19 MY, Ukraine imported 5.7 thsd tonnes of rye flour, down 54% compared with the previous season (12.5 thsd tonnes).
According to APK-Inform estimations, in 2018/19 MY Ukraine imported nearly 2.4 thsd tonnes of rye only, including the lion share (1 thsd tonnes from Latvia and 0.6 thsd tonnes from Russia) in the last month of the season.
At the same time, the export rates were quite active. Although, only in the first half of the season Ukraine realized the export operations, while the availability of free volumes of rye on the market allowed to traders to form the export batches. In 2018/19 MY, the export volumes of rye from Ukraine totaled 88.6 thsd tonnes, up 2.3 times compared with the previous MY (38.5 thsd tonnes). Thus, in 2017/18 MY and 2018/19 MY Ukraine supplied 23% and 16% of the general production volumes of the grain on the global market.
In the season-2018/19, Ukraine actively exported rye to Poland (36% of the whole shipments in the season), the Philippines (17%) and Lithuania (14%). Generally, in the reporting period the share of Ukrainian rye supplies to the EU totaled almost 61%.
The increased demand from exporters, as well as some liquidity of the market in the beginning of 2019/20 MY, can stimulate the growth of rye production in the new season. At the same time, the weather factor will play the key role in the formation of rye production, because winter rye forms 99% of the harvest structure in Ukraine.
You can become acquainted with more detailed information about the rye market within frames of the annual specialized conference "Grain Processors Forum - 2019", where the delegation of experts from Belarus will share their experience on the issue.
Anna Tanskaya, APK-Inform Agency