Last week’s column on the durum market sparked a few calls with information that is worth noting this week.
The previous column was inspired by a reader, Stephen Vandervalk, a southern Alberta farmer and a vice-president of the Western Canadian Wheat Growers Association. He sent us numbers comparing the wheat board’s Pool Return Outlook to prices at elevators near him in northern Montana and North Dakota.
I focused the column on durum because of its spectacular rally.
Even with the big increases in the September PRO, he’d have made more money if he could sell all his crop at those U.S. spot prices. He could get the money up front, without waiting for initial payment adjustments and final payment.
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Then again, looking back from today’s vantage point, selling it all last week might have been a mistake because the market moved higher by about $1. The northeast Montana price Oct. 5 was $14 to $14.20 US per bushel compared to $13.10 Sept. 27.
But getting back to last week’s column, I noted that it was unfair to compare a spot price to a year-long pool outlook and that the CWB could be selling grain on any particular day at the U.S. price or even higher.
On that point, Bruce Burnett, CWB director of market analysis, provided me with these observations.
He said that the U.S. durum market had lagged international prices earlier in the crop year because it had been well supplied.
U.S. producers looked at prices around $7 per bu. for delivery off the combine, considered them excellent in a historical context, and sold.
A Sept. 28 story in the U.S. farm paper Farm & Ranch quoted Jim Peterson, marketing director for the North Dakota Wheat Commission, as saying many farmers sold off the combine and so available stocks are now even tighter.
“In hindsight, producers are probably wishing they hadn’t sold so much so soon, but hopefully this will put some enthusiasm into durum, that there’s still good demand there,” Peterson said.
Burnett agreed with that assessment. The global demand that remains is chasing after an increasingly scarce supply of durum and the CWB is taking advantage of that, he said.
He also noted that while an individual farmer could get the U.S. spot elevator price, if dozens of trucks with Canadian durum were lined up behind him, the price wouldn’t remain high for long.
Burnett didn’t mention it, but experience indicates that if Canadian product started to pour across the border, protectionist American farmers are not afraid of pushing for trade investigations and tariffs.
He did mention another issue in grain marketing: logistics. Canada’s entire grain production can’t be sold in a single day or month that is assumed to be the top of the market. The elevator, rail and port system requires a fairly steady flow through the year to move the year’s crop. Also, grain users usually don’t want to buy too far ahead and, because of storage constraints, want arrivals through the year.
I know this column won’t satisfy everyone either. The arguments for and against the board, from practical and philosophical points of view, could fill a book.
About the only thing everyone should happily agree on is that durum prices are fantastic.
But, oh dear, maybe even that’s hard to agree upon.
If you take the 1980-81 Saskatchewan farm price of about $6 per bu. for durum and you run it through the Bank of Canada inflation calculator, that price would be worth about $15 in current dollars.
