March 14 – What Happens to Durum Prices if Canadian Rail Movement Improves?

Western Canada’s grain transportation issue has been making lots of noise lately. What happens to durum prices if/when it ends?

Western Canada’s grain transportation issue has been making lots of noise lately. What happens to durum prices if/when it ends?

We covered the transportation issue of Canadian grain a few weeks ago, with special mention of how oil movement has increased while grain has dropped.

It’s clear that grain transportation by rail, as well as grain handling capacity, are scoring very poor again this year. Therefore, we wanted to assess whether 2017/18’s outcome is going to be as bad as the 2013/14’s transportation issue.

Using that crop year as a benchmark, here’s a review of where we could see things heading in the next few months as relates to durum wheat.

First though, a refresher.

A bumper harvest filled Western Canada’s grain handling system to the brink in fall 2013.

Temperatures were bloody cold, trains were not moving whatsoever, and producers were left with very few marketing options over the winter of the 2013/14 crop year.

On one hand, farmers were unable to deliver their crop. On the other hand, they were dealing with depressed prices and very weak basis levels as commercials were simply signaling that they did not want to buy their grain.

Finally, in March 2014, the Canadian government intervened by imposing regulation on railroad companies. In particular, they asked the railroads to allocate a certain number of railcars to ship grains so that the backlog could be cleared.

Thus, we figured it would be interesting to look at export volumes from this time back in the 2013/14 crop year, to where we’re at today. We’re specifically looking at the previous 6 weeks, as well as the next 6 weeks. We then are comparing this against Ag Canada’s forecast for full-year export numbers.

Where the data is available, we also looked the basis levels or cash prices of the crops, again comparing things today to where they were in 2013/14 (and where they went from March 2014 onward).

So what does it look like?!?!

Let’s first look at total grain exports.

As the first chart below shows, from week 25 (basically the end of January) to week 31 (the beginning of March), total Canadian grain exports are sitting at 24.8 million tonnes. tracking a bit behind the 3-year average. Further, they are ahead of the 2013/14 pace of all Canadian grain exports.

Thus far in 2017/18, according to CGC, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the 3-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14.

What is likely going to happen as we roll through the next 6 weeks?

Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double!

Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.

 

canadian-grain-total-exports-2017-2018-ytd

Looking at durum wheat, 2.4 million tonnes of the cereal has been exported out of Canada thus far in the 2017/18 crop year. This is about 8% lower than the 3-year average for this time of year, and 16% below what was moved out of the Great White North in the 2013/14 transportation-plagued crop year.

Digging in, Canadian durum exports the past three weeks have been tracking behind where they were back in 2013/14. This could be the result of a lot of different factors but we continue to see this as a railroad issue, as well as slower demand from abroad (Italy isn’t buying and is instead, looking to the likes of Kazakhstan for durum!)

Ag Canda’s total-year forecast for Canadian durum exports is 4.6 million tonnes. To hit that, at least an average of 100,000 tonnes of Canadian durum will need to be moved out of country each week for the remaining 21 weeks!

canadian-durum-exports-2017-2018-ytd


Let’s look at durum prices now.

Full disclaimer: historical AND accurate Canadian durum pricing data isn’t exactly the easiest to source!

That being said, we used Saskatchewan Agriculture’s prices of #1 CWAD (content of protein not specified) and plotted the cash price. We acknowledge the price gap early in 2013/14.

As the third chart shows, durum prices were depressed in 2013/14 given that durum was not really moving through the system. Once the grain backlog was starting to clear up, durum prices also improved a bit.

However, keep in mind that as we transitioned to the 2014/15 crop year, higher durum prices were mainly the result of rains that hit the crop right at harvest in the fall of 2014 (which negatively impacted quality). 

More recently, in 2016/17, we started to see durum prices slide below the 3-year average.

Worth mentioning is that, as shown in this third chart, durum prices have a historical tendency of trending down until June/July or so. This is most likely related to concern about the supply and quality of the impending durum crop, but also due to buyers looking for coverage over the summer months.

To conclude, it doesn’t look like rail transportation really matters for durum prices.

The good news is that durum prices are not as depressed as they were in 2013/14. Further, we do think that there will be opportunities to price out more of our durum as we move into the coming growing season.

With that in mind, you NEED to know your quality on your durum. Not just protein and moisture, but things like test weight, falling number, HVK, etc.. Get all these grain specs/factors tested for through GrainTests.com.

This is especially true if you’re holding onto durum that’s already had a birthday. Case in point, we saw a farmer on the FarmLead Marketplace get $6.50 CAD/bushel picked up on a farm for what he thought was #3 quality durum. The problem was that it was from the 2016/17 crop year and when the samples were tested by the buyer, they showed HVK levels below 20%. That deal was subsequently canceled because the buyer needed 50% at least.

Just promise yourself to be proactive – get those grain tests ordered on GrainTests.com and know your durum so that when prices do move a bit, you’re ready to sell.

 

canadian-durum-prices-bushel-2014-2018

About the Author
Adrian Uzea

Hailing from a farm in Romania’s breadbasket, Adrian’s keen interest in agriculture inspired him to obtain a Master's degree in Ag Economics from the University of Saskatchewan. Adrian provides deep, original insight for Canadian farmers of grains, oilseeds, and other specialty crops to help improve their bottom line. He was previously a Market Analyst with a provider of grain marketing services like DePutter Publishing.