Big Algerian durum crop weighs down price prospects

When searching for the reason for poor durum prices this year we know Italy’s country-of-origin labelling requirement is a problem, but we must also note Algeria’s pursuit of durum self-sufficiency.

Algeria is often the largest buyer of Canadian durum, so it raised eyebrows a few years ago when the government decided it would be better to invest in its agricultural infrastructure to greatly increase its production than to continue the cost of being the world’s third-largest wheat importer.

Durum is consumed in couscous, a staple in diets in North Africa.

Algeria, with a population of 40 million, often imports in the neighbourhood of 8.5 million tonnes of wheat and durum, with wheat making up 75 to 80 percent of the imports and durum 20 to 22 percent. Its climate is not conducive for soft wheat production so it has focused on durum.

It set a goal of becoming self-sufficient in durum and pulses by 2020. It plans to have 25 percent of its arable land, or about five million acres, irrigated by the end of 2019. That is up from 3.2 million. It is opening up land for cereal production, subsidizing irrigation infrastructure, building dams and reservoirs to supply the water and building desalinization systems to take water from the Mediterranean Sea for human consumption. It is also providing assistance to buy seed and fertilizer.

That is an ambitious plan and at first weather problems limited progress toward self-sufficiency. However, in the latest production campaign, Mother Nature co-operated and farmers’ increased seeded area and greater use of inputs paid off.

Farmers had increased durum and wheat area by 30 percent to 5.1 million acres, according to the U.S. Department of Agriculture’s attaché in Algeria.

Thanks to bumper yields, production jumped 64 percent to 3.94 million tonnes, of which 3.15 million was durum and 790,000 tonnes was soft wheat. It also grew 1.95 million tonnes of barley, according to the USDA attache’s figures, which are not official and are higher than the official numbers published by the USDA in Washington.

The attaché writes that soft wheat imports will continue strong. It gets its wheat mostly from European countries.

But durum imports will fall. The attaché did not put a forecast on it other than to forecast that imports of durum from the United States will fall to 500,000 tonnes from 594,000 last year.

Canada is traditionally the largest supplier of durum to Algeria.

In 2015-16, crop year sales to Algeria were 977,600 tonnes, 1.27 million tonnes in 2016-17 and 1.03 million in 2017-18, according to Canadian Grain Commission figures.

Algeria rarely imports much in the first quarter of Canada’s crop year. Exports pick up in the winter and spring so we won’t know for a few months the impact Algeria’s better crop will have on the amount it buys from Canada.

Agriculture Canada forecasts that Canada will export 4.3 million tonnes of durum to all destinations in the current crop year, down only slightly from 4.39 million last year. The forecast might be optimistic given Italy’s restriction on imports and Algeria’s bigger crop.

In the latest monthly report, Agriculture Canada noted that durum exports had got off to a slow start.

The CGC weekly report shows that to Nov. 18 durum exports stand at 996,500 tonnes, down from 1.185 million last year at the same point.

The current Statistics Canada forecast for Canadian durum production this year is 5.69 million tonnes, up from 4.96 tonnes last year. The agency will publish an updated forecast based on farmer survey in early December.

Using the current production figure and forecasts for domestic and export demand, Agriculture Canada forecasts Canadian durum stocks at the end of the year will be 1.9 million tonnes, up from 1.48 million at the end of 2017-18.

The model-based production figure that Statistics Canada issued in September, which was 660,000 tones larger than the July estimate, and also the large year-end stocks forecast combined to weigh down durum prices.

In southwestern Saskatchewan, the cash price for No. 1 CWAD 13 percent protein is slightly above $210 per tonne, about $65 less than at the same time last year, according to data from PDQInfo.ca. Durum is about $40 a tonne less the No. 1, 13.5 percent Canadian Western Hard Red wheat.

Durum’s price will likely stay depressed unless the StatsCan December production update says the model-based forecast was wildly optimistic.

Otherwise, the market will watch the export pace to see whether the issues with Algeria and Italy cause the export forecast to be scaled back again.

Generally, expect that Canadian farmers will be disappointed with the revenue generated by durum and will react by cutting acres next spring.

And looking further into the future, we’ll have to see if Algeria’s crop success this year was a fluke of good weather or a signal that a leading durum importer will consistently meet its own needs thanks to agricultural investment.

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