March 19 – Not Just US Durum Acres in Flux, But Canada Too

As we get closer to seeding season, the buzz around durum acres is raging in both the United States AND Canada. What kind of acreage could we be looking at?

As we get closer to seeding season, the buzz around durum acres is raging in both the United States AND Canada.

Last week, I wrote an article on the potential size of US durum acres this coming spring.

Further, as we mentioned in this past Sunday’s durum digest, we reminded everyone that current estimates suggest anywhere from a 20% cut in US durum acres to a 5-10% increase Clearly, a wide range of estimates

So how similar/dissimilar is it for Canadian durum acres for the 2018/19 crop? Well, it’s not that simple.

Unlike the US, where durum trade was very polarized, we can say for sure that Canadian durum acres are pushing for bigger numbers for the 2018/19 crop year.

Back in our 2018 durum prices/market outlook, we looked at the potential for Canadian 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, which would be up roughly 5.5% from last spring.

FarmLead’s forecast is not far off from Ag Canada’s one with the Canadian government analysts calling for about a 5% increase to 5.46 million acres of durum.

Bruce Burnett, director of markets and weather with Glacier Markets/Farm, thinks that Canadian durum acres will be up only 2-3%. It looks like he is more bearish now in March than FarmLead is, as well as more pessimistic than he was a while ago. Steady international durum prices triggered by weak demand coming from the North American basin have modified his expectations when it comes to durum wheat.

Putting things in perspective, 2018/19’s ending stocks will not look that burdensome by historical standards, as the chart shows.

If we assume the AAFC’s forecasted 2018/19 yield of 39 bu/ac (2.63 tonnes/hectare), this would be below the 5-year year average of 41.6 bu/ac (2.8 tonnes/ha). If that yield is indeed realized, likely Canadian durum wheat production in 2018/19 will amount to 5.7 million tonnes. This would be below the 5-year average of 5.9 million but certainly up from 2017/18’s harvest of 5 million tonnes of durum.

On the demand side, Ag Canada forecasts total use of Canadian durum in 2018/19 at 5.5 million tonnes.

Thus, if we added 2017/18’s ending stocks (1.3 million tonnes) to 2018/19 production (5.7 million tonnes), but subtract demand (5.5 million tonnes), we get a 2018/19 carryout of 1.5 million tonnes. This is also above the five-year average of 1.4 million tonnes.

Ultimately, if Canadian durum wheat acres expand by more than 5%, carryout is a bit more bearish. If less than 5%, then it’s a bit more bullish.

Of course, there is still lots of time from now until the durum seed will make its way into the Prairie soil this spring. Further, Mother Nature also holds the trump card, with most of the market still cognizant of soil moisture conditions. Clearly, lots of wild cards/hurdles are in the way before the 2018/19 durum crop makes it in the bin.

However, based on the visibility we have at this point in time, 2018/19’s Canadian durum wheat supply and demand sheet and its corresponding ending stocks do not look not bad.

Durum acres hard to predict

Predicting durum acres is a more difficult task than usual this year, say analysts.

“There’s a few more variables at play,” said Jim Peterson, marketing director with the North Dakota Wheat Commission.

Lingering drought in the prime durum growing regions, Italy’s country-of-origin-labelling and India’s pulse crop tariffs are making forecasting more challenging.

Peterson’s best guess is that durum acres will be flat to 10 percent below last year’s levels in the United States.

Bruce Burnett, director of markets and weather with Glacier MarketsFarm, thinks Canadian acres will be up two to three percent.

“Originally I thought it was going to be a lot more,” he said.

Burnett initially felt durum would pick up a lot of pulse acres. Agriculture Canada is forecasting a two million acre decline in peas and lentils, the result of India’s punitive import duties on those crops.

However, durum prices have been stagnant due to lacklustre demand from North Africa and the Mediterranean Basin, and that doesn’t entice growers to plant more of the crop.

It had been a dry winter growing season in that region of the world but recent rains have improved crop prospects and that is giving buyers pause.

The U.S. Department of Agriculture said heavy rainfall ranging from 30 to 100 millimetres during the Feb. 25 to March 3 period has boosted the fortunes of Morocco’s winter grain crops.

“Winter grain prospects in Morocco have rebounded considerably from historic autumn drought, and conditions for wheat and barley are currently good to excellent in most of the country,” the USDA said in its Weekly Weather and Crop Bulletin.

Recent rain also benefited crops in western Algeria and Tunisia as well as Italy, Spain, France and Greece.

“We’re not going to see a huge increase in demand from this region,” said Burnett.

Italy’s new country-of-origin-labelling law on pasta made from imported durum is having a profound impact on exports to what used to be Canada’s top market.

Sales to Italy for the first six months of the 2017-18 crop year were 283,300 tonnes, which is 39 percent below the same period a year ago, according to Canadian Grain Commission data.

However, what Canada has lost in sales to Italy it has more than made up for in increased exports to the United States, and that isn’t sitting well with American durum growers.

“The level of imports coming in is certainly causing some frustration and concern amongst growers,” said Peterson.

Canada sent 277,600 tonnes of durum south of the border during the first six months of the crop year, a 300 percent increase over the same period last year.

Peterson said U.S. millers are clamouring for Canadian product because it is cheaper and of outstanding quality this year compared to U.S. product, which is having problems achieving hard vitreous kernels thresholds.

Another contributing factor was that the drought hit the U.S. durum growing region earlier than it did in Canada, which means Canadian growers were more willing to forward sell their durum in August and September than their American counterparts.

Peterson believes durum will lose ground to spring wheat in North Dakota. Earlier this winter he was forecasting as much as a 10 percent increase in spring wheat plantings in the state but now thinks it will be closer to five percent.

He thinks durum acres in northwestern North Dakota will be unchanged to down five percent, while plantings in the southwest could fall 10 to 15 percent because of frustrations over grading factors.

Some industry officials think durum plantings will be up in northeastern Montana because there are fewer crop options such as soybeans and canola. However, Peterson doesn’t buy that because there were record plantings in the state last year.

Burnett said U.S. durum acres might not drop as much as some people think because durum crop insurance prices are at a healthy premium to spring wheat.

Both analysts say a lot still hinges on how the winter crops in Europe and North Africa turn out.

“I’m still optimistic we’ll catch some kind of rally here before planting,” said Peterson.

H/T: Producer
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.