Just how many durum acres will be seeded this year in both Canada and the US? It’s still a wild card it seems…
First, a refresher.
From a US standpoint, we covered potential American durum acres back in late January, suggesting that around 2.4 million acres could get seeded.
In our 2018 durum prices/market outlook, we also looked at the potential for Canadian and American acres, in addition to all the other various market factors we were watching. At that point, we were suggesting 5.5 million acres getting seed in Canada and around 2 million acres in the U.S
It looks like now, two months down the road as we are heading into March, analysts on both sides of the border are still having tough times to figure it out what 2018 durum acres will turn out to be.
The durum market is sending mixed signals.
From one perspective, Jim Peterson, marketing director for the North Dakota Wheat Commission seems to be bearish. He said, “that there is not lots of optimism for any significant recovery in prices.”
This is not a surprise really.
The price of US #1 HAD (hard amber durum) delivered by rail into Minneapolis has been sitting around $8.10 USD / bushel for the past 6 weeks.
In the Golden Triangle – AKA US durum country – the cash price of US #1 Durum Wheat with 13% protein is pegged at $5.75 USD / bushel. Worth noting, however, is that we’ve been actively seeing trades on the FarmLead Marketplace of $6 – $6.50 for delivery into North Dakota elevators
Through all of this, one needs to understand that durum trading is not done on the spot market, but rather with buyers giving attention to filling the needs in the deferred months such as the second quarter (April to June).
From a wider perspective, there are good and bad things about the durum market right now.
On one hand, the market needs high-quality durum. And there’s a lot of it this year, but carry out shouldn’t be super huge, which would justify higher durum acres.
On the other hand, there some bearish factors weighing on the market, although they can be viewed either way.
For example, the US is dealing with logistical issues for grading durum, especially for key specs like HVK and color.
In a similar vein, in Canada, durum exports are tracking behind last year. As of early March, Canadian durum exports were pegged at 2.4 million tonnes, 500,000 tonnes below where we were at this point a year ago.
On one hand, we can blame the railroads for the current backlog (and we have!)
On the other hand, Canadian durum isn’t making its way into the major export destinations such as Italy (something we’ve also previously reported on).
On the positive side of the things, the International Grain Council (IGC) is forecasting Canadian durum exports to be 5% higher year-over-year (despite the Italian durum situation!)
That being said, Canadian durum exports to Algeria and Morocco are up 3% and 20% year-over-year, but Japanese purchases of Canadian durum are down 36% year-over-year.
Getting back to our original question of American acres, US analysts are projecting anywhere from a 20% cut to a 5-10% increase in US durum acres this year.
Also, the USDA does not come up with a forecast of US durum acres until April.
Although it is shot in the dark, its sister agency, Agriculture Canada, projects that Canadian durum acres will expand by 5% to 5.4 million acres this year on a strong export number (a full recap of the AAFC’s outlook on durum can be found here).
Keep in mind that a conversation that we had with a major durum buyer back in January, they were suggesting that a 6 million acre handle wouldn’t be surprising to them (albeit we’ll take that with a grain of salt).
In conclusion, predicting seeded acres of durum this year is still a tough call. In fact, at seeding time, we could see acres bump 10% one way or the other!
Without any clear direction for durum prices, there might be more spring wheat and less durum that gets seeded after all.
Durum planting intentions will provide clues for 2018 markets
The market is calling for high quality durum.
“The general sentiment, even going into deferred months, is that there is not a lot of optimism for any significant recovery in prices,” said Jim Peterson, marketing director for the North Dakota Wheat Commission. “In the market, buyers seem to have their supplies secure in near term positions and fairly deep coverage even in deferred months. That just kind of keeps the market a buyers’ market where prices are stable to maybe under pressure a bit.”
Current local cash prices for milling quality durum have slipped down to about $5.75 per bushel range in some markets and up to maybe $6 in other markets. In general, prices are down from where they were earlier this fall and the early part of winter, according to Peterson.
He also noted the current national index price for durum was $6.25 per bushel in early January and is now down to about $6, so a little bit of erosion in average prices has continued as the winter goes on.
Looking ahead, Peterson thinks there may be some interest in producers moving a bit of their inventory before road restrictions come into play.
“Certainly, the further we get into March and closer to April, if we hit a warm period some of that could be of concern, so we may see a little bit of pickup in producer movement,” he said. “But, in visiting with people in the industry, what producers seem to be moving is probably some of their lower to mid-quality durum.
“I think they could still be banking on some of the higher quality durum and that we may have some price strength this spring either on ongoing drought concerns in a lot of the durum growing region, or bigger-than-expected cuts in durum plantings,” he added.
One thing Peterson feels the U.S. market is struggling with is a lot of uncertainty on the grading and inspecting of durum, especially for key components like color and vitreous kernel counts.
“That’s probably added an unwelcome element of price discounting or price risk into the market this year,” he said. “Although FGIS (Federal Grain Inspection Service) is trying to improve testing consistency, in a lot of local markets it still seems to be a pretty big issue.”
Other issues that could affect the market going forward include the updated export shipments from Canada. For the first six months of the marketing year – August through January – total Canadian export shipments of durum stand at 70 million bushels, which is actually down about 5 percent from a year ago.
“That’s somewhat interesting from a couple different levels,” Peterson said. “One is Canada has obviously been a very aggressive exporter to the U.S. market and I think there was a feeling, based on the latest projections from the International Grains Council, that even worldwide they would be seeing a more aggressive export pace. But, at least in the first six months of the year, that doesn’t seem to be bearing out and they’re running a little bit behind.”
The IGC was projecting Canada to be 5 percent higher on worldwide exports this year. One of the markets where they’re struggling, just like the U.S., is to Italy where their shipments are down 40 percent. Their export shipments to Japan are off 36 percent, however, to Algeria they’re up 34 percent and to Morocco they’re up 20 percent.
“We’ll see what happens over the next 6 months,” he said. “Unfortunately, the U.S. market appears to be where the prime focus of Canadian exporters has been. Shipments to the U.S. are four times higher than the previous year and are running a little over 10 million bushels of imports.
That puts them on pace with USDA’s projection for the year of 20-25 million bushels of durum coming in from Canada. The U.S. typically grinds over 60 million bushels a year and this year a third or more could be from Canada, according to Peterson.
As of Feb. 22, total U.S. durum sales were at 13.6 million bushels which is down 11 percent from the previous year. That total is close to 70 percent of USDA’s goal of 20 million bushels for the year.
Some of the big markets for the U.S. include Italy and Algeria. This year sales to Italy are running about 23 percent behind year ago, however, sales to Algeria are up 62 percent, so that’s positive.
“We’ll see what happens over the next few months,” he said.
Worldwide it still continues to be a challenge to market old crop durum into parts of North Africa, according to Peterson. There was a pretty good European crop this year and the market is seeing increased pressure from Kazakhstan and the Black Sea region.
“They’ve been competitors for the bread-type wheats for a number of years but this year we are starting to see more durum coming from those regions as well,” he said.
Lastly, the big thing going forward that could have an impact on prices is where producers in North Dakota and Montana go in terms of planting durum acres in 2018. Right now, there is variability in expectations with analysts projecting anywhere from a 20 percent cut to a 5-10 percent increase in durum acres. The market will find out more at the end of March when USDA releases its planting intentions report.
“I tend to side on the argument that North Dakota durum acres will be lower simply because of frustration with grading and inspection, the current price levels and just kind of an expectation that spring wheat prices may have more strength,” Peterson said.
“I think North Dakota will certainly be lower on durum acres, but Montana could be steady to maybe up a little in durum acres,” he continued. “They have fewer cropping options than a lot of North Dakota producers in terms of soybeans, canola and some of the other crops, so we’ll see what happens.”
Also, what happens in Canada in regard to durum acres will have a bigger bearing on long terms trends. In its early outlook, Ag Canada, which is their government forecasting agency, is calling for about a 4-5 percent increase in durum plantings in Canada.
“As we said, there has not been much shift in durum prices with most in that upper $5 range. As of right now there are not a lot of variables shifting the market significantly one way or the other. Everyone is just anticipating the early outlook for 2018 durum plantings,” Peterson concluded.