22.09.2010

Press release - Saalemühle Alsleben GmbH

The 2010 grain harvest has literally taken a plunge. Weeks of continuous rainfall have made this a difficult year for farmers and also for mills. We can easily speak of one of the poorest harvests for decades. First, the farmers suffered painful losses with the volumes harvested in Germany as a whole. Then the quality of the harvested bread grain was disastrous for the mills.

This year, we have been confronted with extreme fluctuations in the quality of the grain. In some areas, the results were acceptable. In others, they were a dead loss. Everywhere, the proportion of hollow grain is high. For us as a mill, these small grains with increased mineral content mean a poorer yield of high-quality flour when milling.

In Germany, some 23.8 million tonnes of wheat and 2.8 million tonnes of rye are expected to be harvested. That means that the bread grain harvest will be around 10% lower that it was last year. In normal years, well over 90 percent of the bread grain harvest is suitable for milling, and the mills can choose the best parcels.

For the 2010 harvest, it is uncertain whether domestic agriculture will even be able to supply enough grain of milling quality. In the German state of Saxony-Anhalt, we are expecting a proportion of just 30 percent of grain from the entire harvest of soft wheat and rye to be suitable for baking (2010: 2.58 million tonnes of bread wheat, 365,300 tonnes of rye). That means that our region will have a drastically smaller amount of bread grain at its disposal than it usually does.

The mills have to go to enormous lengths to filter out suitable product from the parcels available. In normal years, the farmers are able to offer large homogeneous parcels. This year there are no homogeneous parcels, even in the best German growing areas for quality grain in Saxony-Anhalt, Saxony and Thuringia. For us, the highly selective process means substantially higher costs.

Grain market for the 2010 harvest

The grain markets are following the weather and have seen a highly volatile development for the 2010 harvest. The cereal stocks got over the very long and cold winter remarkably well. In mid-June, the outlook for the harvest all across Europe was positive. In the second week of July, the heatwave then triggered a true rally on the grain markets. The first indications were emerging that there could be a huge drop in yields. On the Paris commodity futures exchange, the price of wheat increased by a good 20 euro per tonne within the space of two weeks. Then heavy rains and storms impacted the grain stocks that were ready for harvesting, making harvesting work more difficult. At the end of July, the price of wheat reached the 200 euro per tonne mark.

On 5th August, the Russian Prime Minister Vladimir Putin announced an export stop for grain. In Russia, large areas of arable land fell victim to fires. At 233 euro per tonne, the price of wheat on the French commodity futures exchange hit its highest level for 28 months.

The uncertain harvest weather and the prolonged periods of rainfall continued until the end of August, repeatedly delaying the harvest. Ultimately, feed wheat was all that could be harvested in the Thuringian Basin and in Saxony-Anhalt.

At the end of August, the price of wheat on the Paris commodity futures exchange exceeded the peak seen at the beginning of the month, and since then they have remained at about 230 euro per tonne. In early September 2009 the price was 125 euro per tonne. That means a year-on-year increase of 85%.

Conclusion:

The dramatic rise in the price of commodities – a consequence of poor harvest yields – coupled with huge rises in the cost of selecting suitable grain parcels and substantially more costly production have resulted in drastically higher overall costs, and thus inevitably to a severe adjustment in the price of flour.