Since Italy is the home pasta and one of the largest consumers of durum, we wanted to take a look at what’s going on there.
(We also indicated in this past Sunday’s weekly digest that we’d look into the Italian durum market.)
In January, Brennan covered the Italian durum wheat situation extensively.
He reported due to the new COOL (Country of Origin Labelling) law, Italy is no longer buying Canadian durum wheat. The main trigger for the new COOL law is the growth of European consumer opposition to the use of glyphosate that is used here in Canada.
However, the upcoming size of the durum acres in major EU producer countries such as Italy or France can influence outcomes on the durum market here in North America.
What kind of acreage could we be looking at in both in Italy and France?
Well, we dug into some durum production data provided by the Italian and French data reporting agencies.
What we found was that after the quick drought that struck Italy last year, Italian farmers are putting slightly less durum seed into the ground this year in 2017/18.
Durum wheat is expected almost flat at 2.79Mha
In particular, Italy’s durum acres are expected to shrink by about 2% year-over-year to 3.16 million acres in 2018/19. The key thing to remember for European durum acres is that it’s planted in the fall, not the spring, like here in North America.
If we set the 2018/19’s yield in line with the past 5-year average (48.9 bushels per acre), Italy’s upcoming durum production could come in at 4.2 million tonnes. This would be down from the 4.3 million tonnes produced in 2017/18, as well the 4.4 million tonnes 5-year average.
At the first glance, this small production drop has the potential to trigger some unfulfilled durum demand on the Italian market that needs to be replenished from somewhere.
Next door in France, durum acres planted this fall were much lower.
Specifically, the French Ministry of Agriculture reported that durum wheat acres are expected to decline by nearly 8% to 890,000 acres to harvest off for the 2018/19 crop.
However, the French Ag Ministry is expecting yields to rebound. Right now, they are forecasting durum acres to jump to 85 bushels per acre, well above the five-year average of 77 bushels per acre.
Thus, the French durum wheat production in 2018/19 is going to exceed 2 million tonnes. This would be up about 25% from the 1.7 million tonnes taken off in 2017/18, and still more than the five-year average of 1.84 million tonnes.
If this optimistic production estimate is achieved, it will certainly increase France’s ability to fill the Italian durum market’s needs (mainly due to proximity).
It’s worth noting that total European production is expected to be around 9.2 million tonnes in 2018/19, slightly higher year-over-year.
Pricewise, we can see that Italian durum prices are drifting lower. For example, the current price of fine-quality durum with 12.5% protein content is pegged at about $270 USD per metric tonne. Converting metric tonnes into bushels, this would equate to about $7.35 USD and $9.50 CAD per bushel.
Ultimately, the bullish news about the decline of the Italian and French durum acres are not exactly vaulting Italian durum prices higher. It is likely that Italian durum prices will reflect some supply concerns and will edge higher, but it is hard to say when and by how much. We have to point that a lower Italian durum production in 2017/18 helped Italian durum prices rally (as shown in the chart below).
On the French durum pricing front, we find that France’s export activity has been choppy, with exports on and off, over the past three months. The French durum wheat price benchmark, Port-La-Nouvelle, off the Atlantic coast, is pegged at roughly $247 USD per metric tonne (or about $6.40 and $8.70 CAD per bushel).
Clearly, French durum wheat prices are very competitive on the export front. With the crop in both Italy and France now out of dormancy, the weather will really drive price direction. However, if France does indeed see better yields, it will likely compete aggressively with anything coming out of North America.