Durum supply tight but price remains steady

Durum prices might strengthen in the new year, but the rally may come too late to hold acres as producers consider more profitable crops when making next year’s seeding decisions.

Jim Peterson, marketing director for the North Dakota Wheat Commission, said 2012 world durum production was 1.3 billion bushels, down slightly from 2011 and down 200 million bu. from 2009’s record crop of 1.5 billion bu.

Better spring weather helped North America increase production last summer. Canada’s crop rose to 161 million bu. from last year’s 153 million while the U.S. crop jumped 60 percent to 81 million bu.

However, that was not enough to offset production problems in the European Union, Kazakhstan, Syria and Turkey.

“It’s been about three years in a row that the world durum production has contracted, so that’s obviously a little bit bullish for prices,” Peterson said in an interview summarizing the presentation he gave at the wheat commission’s annual outlook meeting Nov.13 in Minot, N.D.

“Stocks look to be tightening, but there is not a robust sales environment taking prices higher.”

North Africa, which accounts for 50 percent of world durum imports, has reduced demand because it is coming off two good growing years with production hovering around 200 million bu., up from 160 million bu. in 2010, Peterson said.

Frayne Olson, a crops economist and marketing specialist at North Dakota State University, told the meeting there is limited downward risk for durum prices, with the exception of two potential clouds: fiscal problems in Europe and the so-called fiscal cliff that the U.S. Congress needs to address by Jan.1.

“Underlying supply conditions for all of our major commodities are very positive right now. The downside risk in prices is limited, with the exception of these two things that are really outside the realm of agriculture,” Olson said.

“On a commodity standpoint, any hint of a recession or cutback on consumer spending will put a negative tone into the commodity markets.”

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Peterson said durum acres in the United States and Canada will fall more than 10 percent next year if the current price relationship with hard spring wheat holds.

“We’re already hearing of some early seed sales from guys that sell certified seed,” Peterson said.

“There is pretty strong interest in spring wheat from typical durum growers.”

Cash bids for durum and hard red spring wheat are about equal, at $8 to$8.25 per bu. in North Dakota and Montana.

Olson said durum is below spring wheat in terms of per acre profitability, which is below corn or soybeans.

“If you can raise a respectable crop of corn or soybeans, spring wheat runs a distant third and durum is below that,” Olson said.

Many producers want a premium for growing durum rather than spring wheat because of the in-creased risk in meeting the tight quality specifications, Peterson said.

“Most producers feel that with how small the U.S. durum crop was in 2011, and the potential trend for acres to be cut again next year in the U.S. and Canada, somewhere north of $10 a bushel is not too high, especially when you compare to corn at $5.50 and even winter wheat in the $8 to $9 range,” Peterson said.

The U.S. durum industry sees the potential to lose durum acres next year but has been getting the durum it needs so is reluctant to press the market higher, he added.

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“They seem to be waiting right before planting time,” Peterson said.

“If they feel they need more acres, they will step up and do more buying, but producers in the U.S. and Canada are locking in contracts and making seeding decisions certainly by the first of the year,” he said.

“It’s difficult to pick up significant acres with a price run right at planting.”

This year’s crop was generally high quality so there is little premium for protein.

Olson said there is a big difference in how Canadian and American durum is marketed. Seventy-eight of the crop is used domestically in the U.S., while 85 percent of Canada’s crop is exported.

“The U.S. is really a domestic driven market,” he said. “When millers and pasta companies start buying, that’s when we know there is some activity and their inventories are getting low. Some Canadian durum does come into the States, but lots of it goes to other parts of the world like Europe and North Africa.”

Olson said Canadian producers will have to be aware of changing supply-demand conditions in the new open market.

“Canadian farmers are going to recognize that price movements can be fairly quick up or down.”

The durum market is small, he said, which leads to periods of volatility. Bids can suddenly increase when a buyer needs to assemble a ship load for an export order.

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