Durum is fetching a healthy premium over spring wheat, but the premium is about to narrow, according to two experts.
“Don’t store your durum into the new crop year because you’re going to get a lower price once we get into new crop,” said Jerry Klassen, manager of the Canadian office of Swiss-based GAP SA Grains and Products.
He also advised growers to “jump all over” new crop prices once they become available at the local elevator.
“(Farmers) are going to have a limited window of opportunity to take advantage of the old price structure in new crop positions,” he said.
The cash price difference be-tween No. 1 Canada Western Amber Durum and No. 1 Canada Western Red Spring wheat was $82 per tonne in southeastern Saskatchewan late last week, or $2.24 a bushel.
Klassen believes there is a good chance the premium will shrink to $1 per bu. as new crop starts hitting the market this summer.
“The Canadian farmer has been thinking that we’re going to get a price rally like we saw two years ago,” he said.
“There is no rally. It’s not coming.”
That is because there is no shortage of supply on the horizon.
Mexico is expected to have 1.1 million tonnes of exportable surplus, which will start hitting the market in June with 250,000 tonnes sold per month through September.
Growers in the European Union increased the region’s durum crop by 500,000 acres. Strategie Grains is forecasting 8.6 million tonnes of EU production, up six percent from last year.
Exports from France and Italy will hit the market in June and July, followed by U.S. durum.
“Once we get into May, the market is dealing with harvest pressure for the next six months,” said Klassen.
Jim Peterson, marketing director for the North Dakota Wheat Commission, agreed that lower prices are on the horizon.
“I’m on the same wavelength (Klassen) is, that we’re going to see that premium narrow, not from spring wheat (prices) increasing significantly but just continued pressure on durum,” he said.
Durum carryout is on the rise in both Canada and the U.S. with Canadian carry out forecast at 1.1 million tonnes, up from 956,000 tonnes last year while U.S. carryout is forecast at 915,623 tonnes, up from 698,421 tonnes.
Also, acres will likely be up in both countries as durum steals land from spring wheat, which is floundering south of the border because of slow exports.
“I know our durum seed sales are certainly doing better than our spring wheat sales,” said Peterson.
There will be a cap on how many more acres will go in the ground because a lot of farmers in durum country will also be planting more peas and lentils due to the strong price performance of those two crops.
He said any problems that develop with the winter wheat crops in the U.S. or Russia could support spring wheat prices and make the crop more competitive with durum.
It also appears that El Nino could result in an early spring, which could lead to increased spring wheat acres.
However, it appears durum acres will be up because growers had respectable yields last year, there were not many quality discounts and there has been a handsome premium over spring wheat.
Another bearish factor is that world durum trade has been down in 2015-16, and Peterson is not optimistic about it rebounding in 2016-17 because plummeting oil revenues have hurt Algeria’s economy.
Canada’s durum export program started out awful but has been picking up steam. At one point, exports were more than 500,000 tonnes below the previous year’s pace. Now they are less than 200,000 tonnes behind.
Peterson said farmers should keep a close eye on North Africa, where it has been dry in Morocco and portions of Algeria.
That important production and consumption region could have a short crop if it does not receive rain during the critical April period.
Klassen said farmers shouldn’t get too excited about prospects of a small North African crop.
“North African demand is about the same every year regardless of their crop size because their crop is low quality,” he said.