Will 2020 Durum Prices Finish Higher Than 2019?
Durum prices started 2020 like they finished 2019: sideways, albeit with a larger trading range. Durum prices moved 20₵ – 25₵ CAD per bushel every day over the holidays, suggesting a bit of odd dynamic as it relates to the direction of the market.
We’ve been playing around these levels though for the last few months, with average durum prices in Western Canada for spot movement hovering around the $7.50 CAD/bushel mark like glue. What’s it going to take to move durum prices higher? If we’re thinking about good risk management thought, we also have to think about what could move durum prices lower.
Durum Prices Pressured by Ending Stocks
The first major factor to consider for durum prices is durum ending stocks. We had a huge carryover from the 2018/19 crop, a function of large crops leading to lower prices, leading to bin doors getting locked up. The old adage in North Dakota of “grow durum every, sell durum every third year” might be holding true this year as the market works through a lot of supply.
More specifically, Canada ended the 2018/19 crop year with nearly 1.7 MMT of durum carried over. Comparably, U.S. durum ending stocks closed out the previous marketing year with nearly 1.5 MMT carried over. Combined with a Canadian durum harvest of almost 5 MMT, and an American haul of 1.7 MMT, this meant that 2019/20 started with nearly 9.4 MMT of durum available for sale in North America.
What’s worth noting here (other than the large amount of supply) is that the durum harvest in Canada and the U.S. actually fell by 13% and 31% respectively. This is important because it will have an impact on 2020 production – more of this in a bit. Globally, the 2019/20 durum harvest dropped by 3 MMT, or down 8% year-over-year to 35.1 MMT.
Of note was the smaller durum harvest in Europe, namely France. Just a few weeks ago, FranceAgriMer increased their estimate of French durum exports, which, combined with the smaller harvest, will push 2019/20 French durum ending stocks down to just 56,000 MT.  This is the smallest carryover for durum in France in eight years.
Durum Prices Helped by Strong Demand Abroad
The one dynamic that’s helping work through the supply has been the strong pace of durum exports for both the U.S. and Canada. Through the middle of December, or Week 19 of the 2019/20 crop year, Canadian durum exports have totaled 1.87 MMT. That’s good for a 56% improvement from the same week a year ago. This is also a nearly 500,000 MT improvement from the five-year average!
Comparably, U.S. durum exports are also tracking well above their five-year average handily, with 571,500 MT shipped out through its Week 29 of the 2019/20 crop year.
Domestic demand started out strong as American millers scrambled a bit to find quality amidst a tough, wet, and long harvest. While durum prices moved higher to accommodate the smaller amount of high quality, it didn’t hit double digits like many were hoping for as they say rain and snow fall on their unharvested crops this fall. I explicitly made this call back in late September as Mother Nature was giving us some tough love:
“Despite some of the concerns over quality, your expectations for durum prices skyrocketing to those levels seen in 2014 might be too far-fetched, given the ample supply still available in the market.”
To prove this fact, the Canadian Grain Commission’s harvest sample survey said that 50% of the 2019 Canadian durum harvest was at least a #1 or #2 grade, with another 40% graded as a #3 or #4. While average protein of 13.7% was lower than the year prior, it is higher than the five-year average.
Have Durum Prices Seen Their Highs Already?
In years where there are some quality concerns, durum prices have usually found their highs sometime in January. That said, U.S millers appear to have decent coverage through March and, in the meantime, seem to be buying here and there, hence the volatility in durum prices of late. What we definitively know is the durum acres are going to increase in 2019 in Canada and the United States, reverting closer to mean average.
What this means is that, from a grain marketing standpoint, locking in durum prices in January, maybe early February is a solid risk management play. Yes, there could be some good pops in the market in March and again in June (that will be wholly dependent on weather though), but the question that you have to ask yourself, “should I wait another 2 – 5 months to get 20₵ – 40₵ more per bushel. Answering this question should be mainly a function of your cashflow needs, but keep in mind that I believe durum prices will drift lower this year.
Therefore, to answer the question at the beginning of this forecast for 2020 durum prices, no, I don’t think we’ll see 2020 end better than 2019 but it’s not going to be a huge drop. Of course, this prediction could easily be thrown out the window with a weather event (or a bumper harvest!), but even with that, keep in mind that there is still a combined 1.6 MMT of durum between the U.S. and Canada that’s expected to carry over into the 2020/21 crop year. While durum ending stocks of this size is certainly below average and arguably bullish, you have to remember that higher durum acres will bring available supply for 2020/21 back up.
Manage risk accordingly!
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