Grain farmers in North America are avoiding durum like the plague.
And that’s about the best news available for those producers who plan to stick with the crop in 2006.
Farmers in Western Canada are expected to slash durum plantings by 30 percent in 2006, with production declining by an estimated 39 percent to 3.6 million tonnes.
Their counterparts south of the border are also expected to abandon durum in droves, with U.S. acreage forcast to dip to its lowest level since 1961 and production to dip by at least 40 percent to 1.6 million tonnes.
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The move away from durum reflects low prices relative to spring wheat.
“In the absence of a spring wheat rally you might have a different scenario, but the reality is spring wheat prices have been strong so you’re seeing some shifting of durum area to spring wheat,” said Rick Steinke, director of market analysis for the Canadian Wheat Board.
Total supplies of durum in North America in 2006-07, which includes sizable carryover stocks, are expected to be 10.6 million tonnes, down from 13 million tonnes a year ago.
Since Canada is the world’s biggest durum exporter and the United States usually second or third, such a big reduction in supplies provides a glimmer of light in an otherwise gloomy price outlook.
“If we reduce our production by 30 percent, that’s going to help things quite a bit,” said Steinke.
“Stocks are burdensome in North America now but we expect that by the end of next season that will have tightened quite a bit.”
He added Canadian durum acres could exceed forecasts, once farmers realize how little durum U.S. growers are putting in the ground.
Jim Peterson, marketing specialist with the North Dakota Wheat Commission, doesn’t expect a last-minute switch to durum south of the border.
High protein durum has been trading at discounts as high as 50 cents US a bushel to high protein spring wheat, a reverse of the typical durum premium of 25 to 40 cents.
Growers in the U.S. say they need a premium of at least 50 cents to offset the higher harvest quality risks associated with the crop.
He added a lot of farmers are still holding supplies of quality 2005 durum in their bins, which is another disincentive to seed the crop again this year.
World demand is expected to be sluggish as Europe and North Africa, the two biggest importing regions, are expected to produce good-sized crops.
The most recent estimate from French analyst Strategie Grains pegs the European Union crop at eight million tonnes, up from 7.9 million last year. While seeded acreage is down, yields are expected to rebound from 2005, when drought limited production in Spain.
In North Africa, after a drought scare earlier in the growing season, recent rains stabilized the crops in Algeria, Tunisia and Morocco, meaning supplies in that region will be above average.
In addition, Mexico is harvesting a large crop and will be back in the export business after being out last year.
All that will make for tough slogging in the world market in the coming year.
“There’s no question the larger crops (outside of Canada and the U.S.) are going to dampen demand,” said Steinke.
The board expects world trade will decline 10 percent from the 7.3 million tonnes estimated for 2005-06 by the International Grains Council.
Steinke said while supply and demand factors are important, the biggest single factor affecting returns for Canadian growers remains the value of the Canadian dollar.
For every nickel increase in the value of the Canadian dollar, the nominal price of durum goes down 30 cents per bushel.
“It’s just a killer,” he said.
The 2006-07 pool return outlook for No. 1 14.5 percent CW amber durum is $204 a tonne, down from $209 for 2005-06.
