Do not expect a durum price rally anytime soon, say analysts.
“The prices are under pressure, and it looks like they’ll continue to be under pressure,” said Neil Townsend, director of G3 market research.
He has noticed a disturbing early-season marketing trend: Canada has shipped 455,400 tonnes of durum through week 10 of the 2015-16 marketing campaign. That is less than half of the 977,700 tonnes shipped through the first 10 weeks a year ago.
“The word would be pretty much brutal,” he said.
“I mean, they’re way behind.”
It is the opposite scenario south of the border, where the U.S. had commitments to ship 542,800 tonnes of durum as of Oct. 8, up from 308,800 tonnes a year ago.
Townsend said that is puzzling, considering the U.S. is experiencing slumping exports for other commodities such as wheat and corn because of the strong U.S. dollar.
Jim Peterson, marketing director with the North Dakota Wheat Commission, said European buyers knew Canada’s carryout was poor quality, and an early season drought made them nervous about the 2015 crop, so they locked up a lot of California desert durum.
“Some of the Italian millers got some coverage just because they knew quality supplies in both Canada and the U.S. were quite tight,” he said.
They also gobbled up a lot of this year’s northern U.S. durum crop, which came off early.
Peterson said American farmers were eager to sell the crop off the combine at US$7 per bushel compared to $4.50 for their spring wheat. Prices have since fallen to $6.50 to$6.75.
Greg Kostal, president of Kostal Ag Consulting, has another theory to explain why so much U.S. durum moved.
“The U.S. price got cheaper sooner,” he said.
The Canadian price stayed high because of yield and quality concerns with the last half of the crop.
Kostal said a lot of good quality was produced around the world this year, which has limited blending options for the Canadian crop. Price spreads between No. 1, No. 2 and No. 3 quality are tight.
“There is just not the urgency to import from Canada for blending purposes,” he said.
Peterson said U.S. quality is much improved, with 90 percent grading No. 2 or better compared to 60 percent a year ago and the long-term average of 75 percent.
“We’ve certainly got the quality to compete this year,” he said.
Average test weight of the U.S. crop is 60 pounds per bushel, and it has 90 percent hard vitreous kernels, .8 parts per million deoxynivalenol (DON) and 13.9 percent average protein content.
“Those are all selling cards when you’re trying to move the crop,” said Peterson.
As well, there is a lot of crop to sell. U.S. growers harvested about 2.24 million tonnes, well above the five-year average of 1.91 million.
G3 estimates Canadian growers harvested a slightly above average crop of 4.8 million tonnes, but the quality is disappointing.
The company expects 56 percent of this year’s Canadian durum crop will make the top two grades.
“It’s not unusual for 70-plus percent to be No. 1s and No. 2s, so this was lower than usual but a significant improvement over last year,” said Townsend.
He worries Canada’s exports may not recover from the early-season setback and that the United States has stolen market share.
“Typically speaking, if you miss export slots, you don’t entirely make it up one-to-one later in the year,” said Townsend.
“We are struggling, so the longer that story goes on the worse it looks.”
Kostal is not overly concerned about the pace of exports.
Canada shipped 5.37 million tonnes of durum last year. Agriculture Canada is calling for a vastly reduced sales program of 4.1 million tonnes this year.
As a result, being 522,300 tonnes behind last year’s pace after week 10 probably is close to where exports should be, he said.
He is waiting for tenders out of Tunisia and Algeria to get a read on the depth of demand and what prices buyers are willing to pay.
Peterson is worried North African demand won’t be strong.
The International Grains Council forecasts that world durum trade will fall 13 percent to 8.1 million tonnes, down from last year’s exceptionally high level of 9.3 million tonnes.
World durum production is forecast to increase by 11 percent to 36.1 million tonnes.
There were good crops in many big importing regions such as the European Union, the Middle East and North Africa, where Algeria doubled its production to 2.5 million tonnes from 1.3 million tonnes a year ago.
Peterson expects that there will be a lull in U.S. exports after the Italian demand dries up.