Current Sales Position:
We are 40% sold for 2017/18 old crop durum wheat.
We are 0% sold for 2018/19 new crop durum wheat.
In the past couple of months, we have provided extensive coverage of various factors that are affecting the durum market. Now that we’re in the second half of 2018, we’re going to take this opportunity to provide some in-depth assessment of the durum market factors such as:
– North American Production Trends
– Global Production Trends
– Durum Exports Trends
– Price Outlook
North American Durum Production Trends
On the acreage front, StatsCan said that Canadian producers planted 6.19 million acres of durum this spring. This is up 7% from the April estimate and up 19% year-over-year.
If we assume that, on average, 98% of Canadian planted acres are harvested and assume a slightly below-average yield of 41.6 bushels per acre, 2018/19 Canadian durum production would be 6.57 million tonnes. This would be 32.5% above last year’s Canadian durum wheat crop of 4.96 million tonnes, and 15.3% more than Agriculture Canada’s 2018/19 June production estimate of 5.7 million tonnes.
In contrast to Canada, the USDA says that American farmers planted 1.89 million acres of durum this spring. That is down nearly 6% from the March estimate and down 18% year-over-year.
If we assume an average harvest rate of 96% and an average yield of 39.4 bushels per acre, 2018/19 U.S. durum production would be nearly 2 million tonnes. This would be 30% or 450,000 tonnes more than last year’s drought-riddled American durum crop of 1.5 million tonnes. However, it would be pretty much in line with the 5-year average of 1.9 million tonnes.
It is clear that the North American durum supplies will be far from tight. From a price standpoint, 2018/19 durum production prospects look a bit bearish.
Global Durum Production Trends
On the global production front, new crop world durum production is an issue we tackled in the first half of 2018 and continues to be relevant going forward. A month ago we reported that in the view of the Italian agency Arete, world durum production is expected to hit 38.5 million tonnes in 2018/19. This is up more than 3% from 2017/18.
The production increase is mainly attributed to Canada and America. Areté also estimates EU durum production will fall by 5.5%. Production in the major-consuming country of Italy is estimated to be basically the same as last year. However, they are expecting a slightly bigger crop in the Mediterranean and in North Africa.
Thanks to a drier spring, it’s expected that the 2018/19 Kazakh durum harvest will come in at 525,000 tonnes. This is an 8.5%, or 45,000-tonne decrease in production year-over-year.
It is clear that durum markets are dealing with a global production glut. As such, this will continue to cap durum prices on the world market.
Durum Exports Trends
The big surprise this year is that Italy hasn’t been buying durum from Canada since the fall. Since then, the country has opted to buy durum from Russia, Kazakhstan, and the U.S. Even so, American durum exports are tracking behind their seasonal average.
We have also pointed out that Italian marketing-year-to-date imports from the countries outside the EU bloc are sitting at 770,000 tonnes. This is much lower than the 1 million tonnes reported at the same time a year ago and the 5-year average of 834,000 tonnes.
Due to the shutdown of the Italian market and weak world demand, Canadian 2017/18 durum exports are behind. However, other countries like Algeria, Morocco, and the U.S. are picking up Italy’s share of Canadian durum exports.
According to the Canadian Grain Commission (CGC) data on monthly exports, Italy was back on the market in May, buying 43,600 tonnes of Canadian durum. This was the first purchase by the Italians since shipping in 79,500 tonnes in November 2017.
While the outlook for Canadian durum exports is a bit dim, Italy’s return to the market provides a breath of fresh air. Very specifically, it is a sign that durum supplies in Italy could be dwindling and Italian millers are seeking good quality durum, much of which is produced in Canada.
What’s in Store for Durum Prices for the Rest of 2018?
Seasonal tendency is an important factor that comes into play around this time of year. For a number of crops, including durum, late August to October is when a seasonal price low typically occurs, as the harvest pressure kicks in.
Prices are expected to rebound once the harvesting season is complete, between November and December. Check out our graph below showing exactly when durum prices tend to plunge, and when they tend to recover.
Over the past 5 years, durum prices varied significantly. As you can see in the table below, they had the best performance early in August as weather concerns weighed on the market. Durum prices also perform well in November, once the harvest pressure passes.
If we see some dry weather stick around throughout this summer, the 2018/19 grain marketing year could mirror the 2012/13 year when Western Canada experienced severe production losses. However, because of the large increase in Canadian durum acres, price rallies may be limited.
Ultimately, it appears that bearish factors will dominate the durum market in the second half of 2018. However, we know that Mother Nature and, subsequently, quality, are the two main influencers on durum prices. And with the return of Italy, an important customer of Canadian durum, the outlook for Canadian durum prices is looking up a bit.
Regardless, we continue to see buyers purchasing hand-to-mouth, that is, purchasing only what they need. Thus, we expect prices to trade sideways for the next 6 months of 2018. This could obviously change if the weather turns really dry in Saskatchewan.
All things being equal, we’re comfortable sitting on more old crop as we’re likely on the lows today and feel upside opportunities do exist. That being said, they’ll come in the form of short rallies that align with durum buyers’ short demand needs.
As such, moving forward, we’re going to stay diligent about selling opportunities and bid sheets. This is part of the risk management process that you need to be on top of as well: don’t just wait for the price you want, but understand why prices could rally or fade.
Have a great week!
– Brennan, Garrett, and Adrian
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
June 24 – Durum Wheat Weekly GrainCents Digest
June 17 – Durum Wheat Weekly GrainCents Digest
June 12 – June WASDE Shows US Will Export Less Durum in 2017/18
June 10 – Durum Weekly GrainCents Digest