Two weeks ago, we got the USDA’s prospective plantings report, which showed that there are fewer wheat durum acres that are getting planted in the US in 2018.
Last week, we provided you with a refresher on how durum wheat quality and weather impacted North American wheat durum prices back in the 2016/17 and 2017/18.
This week, the USDA released its April 2018’s issue of the World Agricultural Supply and Demand Estimates (WASDE) report.
In the report, 2017/18 US wheat durum ending stocks edged higher by 8% from 35 million bushels in March to 38 million bushels now in April.This is due to a faster pace of US wheat durum imports in 2017/18. More specifically, total US durum imports were increased by 6% from 47 million bushels in March to 50 million now in April.
A faster US wheat durum import pace can be viewed as a slightly bullish news for durum prices and producers in Western Canada.
But what else is going on the North American durum market going forward in 2018/19? The USDA does not release its forecast for the 2018/19 crop year until next month.
With these different factors, what will the supply and demand situation look like for US wheat durum? What are the implications for wheat durum producers on both sides of the border?
The table below depicts US’s supply and demand table for durum over the past six marketing years (2012/13 to 2017/18). We’ve also inputted three scenarios for 2018/19. These forecasts associated with a low, average, and bumper production year.
On the supply side of the equation, we assume that seeded acreage shrinks sharply by roughly 13% to roughly 2 million acres, which would be in line with USDA’s forecast on March 29.
Abandonment is pegged at roughly 2.5%, in line with the 5-year average.
For the 2018/19’s Low-Yield scenario, we used a yield of 30 bushels per acre. This is below the 5-year average of 42 bushels per acre and slightly above 2017/18’s yield in a drought year, which was pegged at 26 bushels per acre.
One could expect a US wheat durum crop of 58 million bushels (or 1.59 million tonnes). This is slightly bigger than 2017/18’s production of 55 million bushels (or 1.49 million tonnes) or 2014/15’s smaller year of 54 million bushels (or 1.47 million tonnes).
For the 2018/19’s Average-Yield scenario, we used an average yield of 42 bushels per acre ( the 5-year average). The corresponding production is pegged at 82 million bushels (or 2.23 million tonnes), which would be in line with 2012/13’s or 2015/16’s production levels.
Lastly, for the 2018/19’s High-Yield scenario, we used a yield of 45 bushels per acre (above the 5-year average). Based on this assumption, the US durum wheat production could get to 88 million bushels (or almost 2.39 million tonnes). It will not be a record high, but it could potentially still be the second largest in the past couple of years (the last bumper US durum crop of 104 million bushels (or 2.83 million tonnes was recorded back in 2016/17).
For the 2018/19’s Low-Yield scenario, we think that a strong US wheat durum import pace will do the job of replenishing durum millers south of the Canadian border. Hence, we would peg US durum imports at 50 million bushels (or roughly 1.36 million tonnes) as shown on the chart.
For the 2018/19’s Average-Yield scenario’s imports, we can just assume the 5-year average, calculated at roughly 40 million bushels (or 1.09 million tonnes).
For the 2018/19’s High-Yield scenario for US durum production, we will assume a slower import pace, down to 35 million bushels (or .95 million tonnes) behind the 5-year average.
On the demand side, the assumptions will be similar across the 3 scenarios. They are a middle ground between the 5-year average and 2017/18’s scenarios.
All in all, the three scenarios will trigger different net-results.
From an ending stocks perspective, in the 2018/19’s Low-Yield scenario, the US durum balance sheet could get somewhat light. The net result is ending stocks of 38 million bushels (or 1 million tonnes) which is in line 2017/18’s ending stocks but still hefty by historical standards. The 5-year average for US carryout is 27 million bushels (or .730,000 thousand tonnes).
Accordingly, the stocks-to-use ratio comes in at 35%, which is in line with 2017/18’s similar number but above the 5-year average of 23.5%. Clearly, this scenario is neutral to slightly bullish and supports the upside price potential. On the pricing front, the US durum prices could hover around the $6.50 US dollars per bushel (or $8.20 CAD per bushel).
For the 2018/19’s Average-Yield scenario, the US durum balance sheet is looking heavier. The net result is ending stocks of 51 million bushels (or 1.39 million tonnes). This would be an increase of more than 30% from 2017/18’s ending stocks of 38 million bushels (or 1.05 million tonnes).
In this scenario, the stocks-to-use ratio will edge higher to 47%, which is obviously high compared to the five-year average mentioned above. Clearly, this scenario does not support the upside price potential. Accordingly, the US durum prices could edge lower to $6.25 US dollars per bushel (or $7.80 CAD per bushel)
For the 2018/19’s High-Yield scenario, the net result is not much different than in the previous scenario of 2018/19 Average-yield. Gains in US durum supply triggered by a larger US durum crop would be outweighed by lower imports.
Accordingly, the stocks-to-use ratio will edge higher to 47%. Clearly, this scenario does not support upside price potential either. US durum prices could drop to as low as $6.00 US dollars per bushel (or $7.50 CAD per bushel).
While these scenarios are entirely hypothetical, the purpose was to go through the mental exercise of what durum market conditions in North America could be.
Obviously, a lot of this hinges on the weather as well as with durum acres in Canada.
Thus, acreage and weather will be the two, clear wild cards to watch going forward.