I’ve been on the road for the past 2 weeks and so I finally grabbed a few beers on Friday and a lot of coffee on Saturday and deconstructed Agriculture & Agri-Food Canada’s Outlook for Principal Field Crops, namely what they’re expecting for the 2018/19 crop year.
For Canadian durum prices, it’s clear that the AAFC is getting a bit more optimstic, thanks to the market finally working through the suprising supply of crop from the past few years.
I’ll jump into why, but let’s first walk through a few factors of what’s going on in the Canadian durum complex.
First, Canadian durum acres will increase for a second straight year (albeit nowhere near the 6.2 million acres planted in Canada for the 2016/17 crop year). Agriculture Canada is forecasting just under 5.5 million acres of the cereal getting planting in 2018/19. If you recall my conversation with a prominent durum buyer, some other private market analysts are calling for up to 6 million acres.
This would be a 5% jump from 2017/18’s 5.2 million acres, but only 1.5% more than the five-year average of 5.39 million acres.
Add in an average yield of 42 bushels per acres and less than 2% abandonment, Canadian durum production for the 2018/19 crop is expected to wind up at 5.7 million tonnes. This is a 15% jump from 2017/18’s crop of 4.96 million tonnes, but 4.5% less than the five-year average of 5.96 million (we mainly have the record 7.76 million-tonne crop in 2016/17 to thank for that).
From a demand perspective, Canadian durum exports are expected to come in at 4.7 million tonnes in 2018/19. This would match the current AAFC estimate for 2017/18 estimates, although we are a bit skeptical of that estimate, mainly because of the lack of Italy buying any Canadian durum, as discussed previously.
Comparably, the five-year average for Canadian durum exports is 4.8 million tonnes.
Domestic demand pales in comparison to exports for Canadian durum. Total domestic use of durum in Canada in 2018/19 is forecasted by the AAFC at just 810,000 tonnes! This would be more than 13% below 2017/18’s forecated domestic use of 935,000 tonnes.
But it’s 30% below the five-year average of 1.16 million tonnes. The only reason though that the five-year average is so high is because nearly 2.1 million tonnes of crappy durum went into the feed market in 2016/17.
More than anything though, thanks to the strong exports, the 2018/19 crop year is likely to end with 1.4 million tonnes of durum still available for sale. This would be down about 17% more than the 1.2 million tonnes that 2017/18 is expected to end with with and 2% more than the five-year average of 1.38 million tonnes.
So what does this mean durum prices, Brennan?
Truthfully, it means nothing. Weather in April and May are pretty much going to be the major influencer of durum prices going forward.
There are more than a few pockets of durum soil that doesn’t have a lot of moisture in it. Without some rain, there certainly is durum production risk, especially in the US, which we discussed a few weeks ago.
The other factor for durum prices will be Italy. If we had the Italian market buying Canadian durum again, then we would likely see prices in the $9 CAD / bushel handles. But without the nearly 1 million tonnes of average demand from them, this is how we keep ending stocks above the very, very comfortable level of 1 million tonnes.
And accordingly prices will toggle the $8 CAD / bushel handle until a fresh demand pop or supply headline comes about.
AAFC’s Canadian Durum Forecasts for 2018/19
For 2017-18, supply decreased by 23% as higher carry-in stocks partly offset the 36% fall in production. Exports are forecast to rise by 4% to 4.7 million tonnes (Mt) because of the high quality of the Canadian durum and stronger demand from the US. The export forecast includes some exports (0.35 Mt) which are not included in the Canadian Grain Commission (CGC) weekly export data and exports of semolina of 0.04 Mt. Feed, waste and dockage is expected to fall sharply due to the lower supply and better quality of the 2017-18 crop. Carry-out stocks are forecast to fall by 36% to 1.2 Mt, 12% lower than the past five-year average of 1.36 Mt.
World durum production decreased by 2.5 Mt from 2016-17 to 37.7 Mt, while supply fell by 2.4 Mt to 47 Mt, according to the International Grains Council. Use is expected to decrease by 1.7 Mt to 38.4 Mt, as higher food use is more than offset by lower feed use. Carry-out stocks are forecast to fall by 0.8 Mt to 8.6 Mt.
Durum production in the US fell to 1.49 Mt from 2.83 Mt for 2016-17 due to a 20% decrease in seeded area and lower yields resulting from drought in the spring durum growing areas.
The average Canadian crop year producer price for durum is forecast to fall from 2016-17 as support from the lower world, Canadian and US durum supply is more than offset by the better average quality of the Canadian durum crop and the stronger Canadian dollar.
For 2018-19, the area seeded to durum is forecast to increase by 5% from 2017-18 due to low carry-in stocks, relatively good prices and a shift out of lentils. Production is forecast to increase by 15% to 5.7 Mt as the higher area is compounded by a return to trend yields from the below trend yields of 2017-18. Supply is expected to increase by only 1% as the higher production is mostly offset by lower carry-in stocks. Exports are forecast to be the same as for 2017-18 and carry-out stocks are forecast to rise by 17% to 1.4 Mt.
World durum production is forecast to increase by 0.7 Mt from 2017-18 to 38.4 Mt, while supply is unchanged at 47 Mt because of lower carry-in stocks. Use is expected to be stable at 38.4 Mt and carry out stocks are forecast to be unchanged at 8.6 Mt.
US durum production is forecast to increase to 2.3 Mt from 1.49 Mt, assuming a 4% increase in seeded area and a return to normal moisture conditions and trend yields. US winter durum seeded area fell by 41%, but the spring seeded area is expected to increase by 7%, resulting in an overall increase of 4%.
The average Canadian crop year producer price for durum is forecast to fall from 2017-18 due to higher Canadian and US supply and expectations for a stronger Canadian dollar.