Current Sales Position:
We are 40% sold for 2017/18 old crop durum.
We are 0% sold for 2018/19 new crop durum.
Over the past couple of weeks, durum prices have been trading sideways-to-lower. However, we continue to see some bullish developments in this year’s crop that could turn the tide.
Let’s start off with Agriculture Canada’s monthly outlook for major grains, oilseeds, and specialty crops.
For the 2017/18 Canadian durum balance sheet, AgCanada raised the ending stocks by 100,000 MT, or 8%, month-over-month to 1.4 MMT. This was mainly because exports were lowered by 100,000 MT (or 2%) month-over-month to 4.5 MMT. Add in slightly lower feed use and 2016/17 ending stocks raised by 15,000 MT, and you come up with the bigger carryout.
For 2018/19 durum, the AAFC raised ending stocks by 300,000 MT (or 20%) month-over-month to 1.8 MMT. This translates to the 2018/19 stocks-to-use ratio going from 27% in June to 32% in July, a bearish increase.
On the demand side of the equation, Exports and Feed Use were raised by 100,000 tonnes to 4.8 million tonnes and 505,000 tonnes, respectively. For the latter, this is a 25% jump from the June estimate.
The main reason for the increase in ending stocks were bigger acres, which really just means bigger production. More specifically, the government agency raised 2018/19 Canadian durum production by 400,000 MT (or 7%) month-over-month to 6.1 MMT. This was due to StatsCan saying in June that Canadian farmers planted 6.19 million acres of durum this past spring, or 408,800 acres more than what the agency reported in April.
The other notable change in supply was on the yield front: AAFC lowered it to 36.9 bushels per acre. This is a bit of a stretch from the 5-year average yield of Canadian durum, which is 42 bushels per acre.
Also, a recent Western Canadian crop tour put this year’s average yield at 34.5 bushels per acre. Last year, average Canadian durum yields were 35.3 bushels per acre.
In line with these bearish changes, AAFC lowered their new crop price range by $5 to $240 to $270 CAD per metric tonne (or $4.96 – $5.59 USD or $6.53 to $7.35 CAD per bushel).
One thing we’re becoming more cognizant of is the strengthening Canadian Dollar. This has been buoyed by slightly stronger oil prices (fuelled by geopolitical risk) and the Bank of Canada (BoC) raising interest rates yet again this week (they now sit at 1.5%). It’s widely expected that the BoC will hike Canadian interest rates again before the end of 2018, suggesting some additional strength in the Loonie.
Ultimately though, we reiterate our call from the second half outlook for Durum that the Loonie will likely trade between 75 and 80 cents through the end of the year.
As the Canadian Dollar strengthens, it can weaken the competitiveness of exported Canadian crops, as it decreases the purchasing power of international buyers.
Deteriorating Durum Crop?
According to the latest Saskatchewan Agriculture crop report, just 41% of the province’s durum crop is rated good-to-excellent (G/E). This represents a 7 point drop from 2 weeks ago and is now 27 points below the 5-year average of 68%.
A closer look at the crop conditions across the province reveals the deteriorating crop conditions in Southwest and East-Central Saskatchewan. Conversely, Saskatchewan Agriculture report showed crop condition improvements in Southeast and West-Central Saskatchewan. However, we made the call last week that the durum crop in Saskatchewan continues to be a big unknown this year, and that’s a short-term price catalyst we cannot ignore.
Next door in Alberta, the durum crop there rated G/E is sitting at 46%, down sharply by 20 points from 66% two weeks ago and down 18 points from the 5-year average of 64%.
Taking a glance at the U.S. Drought Monitor Map for Montana shows that the pockets hit by dry weather conditions have expanded over the past week.
Thus, it’s no surprise that we saw G/E ratings of the Montana durum crop drop 6 points week-over-week to now sit at 55%. While it’s way higher than last year’s rating of 4% at this point and the 5-year average of 37%, we’re continuing to monitoring the situation.
It’s a bit of the opposite to the south in North Dakota, where 84% of durum fields are rated G/E, much higher than last year’s rating of 14%. This is also up 3 points from last week and 17 points above the 5-year average.
According to this week’s Wheat Quality Council (WQC) crop tour in North Dakota, this year’s durum yield is pegged at 39.3 bushels per acre. This is even lower than last year’s 39.7 yields and the five-year average of 40.5 bushels per acre. Currently, the USDA is forecasted an average durum yield of 40.7 bushels per acre.
If we take the WQC’s yield estimate, the 2018/19 US durum crop would come in at 1.96 MMT (or 72.35 million bushels) down 1.5% from USDA’s current estimate of 2 MMT (or 74.89 million bushels). This is slightly bullish.
Going into tomorrow’s USDA crop progress report for Week 39, the seasonal average shows a 67% G/E rating for North Dakota’s durum crop. Comparably, Montana’ seasonal average sits at 37%.
With a more bearish Canadian carryout but offsetting bullish crop conditions, it’s not a surprise to see that American durum prices have stabilized, after turning a bit lower last week.
Thus, things are sitting a bit more neutral in terms of where durum prices go next. It is becoming more and more obvious that weather is the wild card that will be determining the direction of this market in the next couple of weeks.
Have a great week!
– Brennan, Garrett, and Adrian
July 22 – Durum Wheat Weekly GrainCents Digest
July 18 – Rainy Spring Boosts Spain’s Durum Yield
July 15 – Durum Wheat Weekly GrainCents Digest
July 12 – July WASDE Shows Increased Durum Production
July 8 – Durm Prices Outlook for the Second Half of 2018
July 1 – Durum Wheat Weekly GrainCents Digest
June 29 – US Durum Acres Down 18%, Stocks Down 1% from 2017
June 29 – StatsCan Reports 6.2 Million Acres of Durum Wheat in 2018/19