A U.S. wheat industry analyst is having difficulty explaining why durum prices are falling in an environment of steadily eroding production prospects.
“It’s hard to rationalize why they’ve come back because really, fundamentally, nothing has changed,” said Jim Peterson, marketing director for the North Dakota Wheat Commission.
American growers who were getting $15 per bushel for top quality durum in June are now seeing $11 bids at their local elevators.
“Certainly the fundamentals haven’t changed where it’s worth a $4 per bu. drop,” said Peterson.
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The Canadian Wheat Board’s Pool Return Outlook for No. 1 durum 11.5 percent protein fell to $403 per tonne in July from $425 in June.
The United States Department of Agriculture’s August report reduced its U.S. durum crop forecast to 1.55 million tonnes, down 190,000 tonnes from July and well below last year’s 2.91 million tonnes.
“A lot of people think our production could drop closer to the 50 million bu. (1.36 million tonne) level,” said Peterson.
What is left of North Dakota’s flooded out crop looks good, but growers say it is maturing too fast and they are concerned about disease damage and the crop’s shallow root system.
The USDA is forecasting 353,000 tonnes of carryout at the end of 2011- 12. But Peterson said it could easily be lower than that, drifting towards the 217,000 tonne level of 2007-08 that drove durum prices over the $20 per bu. level.
He believes prices won’t reach that heady level again. Buyers are not going to empty their mills and will turn to non-durum substitutes for pasta making.
There is also mounting debt in Western Europe, which is a big importer of durum. That could make it difficult for buyers to secure credit to make purchases.
Europe and North Africa have also had good durum harvests. The European crop was smaller than hoped for in the spring, but decent and of good quality. North Africa had an above average crop.
“So we’re really not seeing a lot of export pull in our market,” said Peterson.
That is part of the reason durum prices have drifted lower. But Peterson believes the supply fundamentals will drag durum prices back up eventually.
“I still feel pretty optimistic from a producer perspective that prices will improve as the year progresses.”
Canadian Wheat Board market analyst Neil Townsend said buyers seem comfortable with their supplies after a buying frenzy earlier this year sparked by concerns over U.S. crop prospects.
They know there will be a big desert durum crop in Mexico, California and Arizona next May and a good one coming off Canadian combines in the next few weeks.
“The signal is that the Canadian durum crop is going to be significant,” said Townsend.
Statistics Canada released a production forecast last week based on satellite images of vegetative growth calling for 3.8 million tonnes of durum, which is identical to Agriculture Canada’s forecast in its latest supply and disposition report.
