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Author: T. Allen
Agricultural Economics, University of Saskatchewan
Saskatoon, Saskatchewan, S7N 5A8

• Introduction
• Rye Consumption
• The Price of Rye: Trends and Stability
• World Trade in Rye

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The Price of Rye: Trends and Stability

One of the most important functions of any market is to establish a market clearing price, and one measure of the performance of a market in this regard is the degree of price instability. While the prices of rye, barley, and feed wheat tend to move together, the farm price of rye has fluctuated from considerably above to considerably below the price of barley (Figure 1).

Figure 1. Wheat, Barley and Rye Prices in Saskatchewan 1970-1993.

Source: Saskatchewan Agricultural Statistics 1994

Price instability often has a major influence on farmers' production decisions. This is especially true if there is not an effective mechanism in place to reduce price risk. An open market system, with a cash and futures market, should theoretically provide a mechanism for price determination and for guidance of inventory. A second role of such an open market system would be to provide a tool that can be used to reduce price risk through a hedging action. However, the rye contract on the Winnipeg Commodity Exchange was recently shut down. There was virtually no volume or open interest and none of the market participants regularly used the contract. Consequently, the Winnipeg Commodity Exchange announced in April of 1995 that trading of the rye contract would be discontinued in the fall of 1995.

World Trade in Rye

Trade in some grains, such as wheat, is large in comparison to production and consumption. The opposite is true for rye where international trade is relatively small. For example; the annual world trade for the 1982 to 1991 period amounted to 18.6 percent of wheat production, 10.2 percent of barley production, but only 2.5 percent of rye production. Canada is an exception to the rule and in some years over 50 percent of its annual production has been exported. This share of the world rye trade has declined in recent years but Canada still accounted for over 40 percent of the world exports in rye over the ten year period 1981 to 1991 (Canadian Grains Industry-Statistical Handbook 93). Consequently, export trade has provided a large share of the total market for Canada's rye crop.

It is important to note the pattern of export destination for Canadian rye. With the exception of the three year period, 1979 to 1982, Canada has had only one export market of any note, that being Japan. For the 10 year period, 1981/82 to 1990/91, Japan purchased more than 100,000 tonnes of Canadian rye each year. Japan is presently the main export market for Canadian rye accounting for approximately 86 percent of the total Canadian rye exports between 1986 and 1990. Japan imports rye primarily to satisfy the needs of the local feeding industry where a feed grain is required that will produce a white fat in the meat.

Japanese agricultural policy restricts the entry of foreign wheat and barley, therefore, corn becomes the basic feed ration ingredient. This creates a problem for livestock feeders as Japanese consumers desire a meat quality that cannot be obtained by feeding corn alone. For this reason, rye and sorghum are imported as feed ingredients to produce a desired meat quality. As a consequence, the market for Canadian rye is largely the result of Japanese food policy and trade rules. The future of the Japanese market is uncertain and if the Japanese Food Agency relaxes the import quotas on wheat and barley there will be less of an incentive to import Canadian rye (Storey and Allen, 1994).

The Europe Union (EU) has emerged over the last two decades as Canada's major competitor in the international rye market. Large surplus stocks of rye have built up in the EU because of high price supports for rye and a declining usage and consumption. The level of price support has declined in recent years with a reform of the Common Agriculture Program (CAP). However, future levels of production of rye in the EU are uncertain, as it is not clear what farmers will do in the face of declining government price support for all cereal and oilseeds.

The Former Soviet Union (FSU) is the dominant producer and user of rye. This large consumption of rye by the FSU may not translate into market potential for Canadian rye. The Soviets purchased a significant amount of Canadian rye for a three year period, 1980 to 1982, and have imported very little or no rye at any other time before or after this period.

Rye is not a widely traded commodity and the potential for expanding the current export market is not great. Rye tends to be consumed in the country in which it is produced suggesting that an expanded domestic feed market would be required before increased production could be accommodated in Canada.