U.S. loan rates could prompt more durum seeding

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Published: April 29, 2010

The last thing the market needs is more durum, but a U.S. subsidy program could prompt American growers to plant more of the crop this spring.

Loan rates for the 2010 crop have been set higher than $6 US a bushel in the durum growing states of North Dakota and Montana.

That’s about $1.50 higher than the 2009 rate and well above the current U.S. elevator price of $4 per bushel.

It’s also a significant premium over the 2010 loan rate for spring wheat, which is $3.70 per bu. in North Dakota.

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“We certainly wouldn’t be surprised if there’s a significant increase in durum acreage now in the U.S. versus last year,” said Bruce Burnett, market analyst for the Canadian Wheat Board.

That would be bad news for prices, given the burdensome supplies in North America going into the 2010-11 crop year.

“What we need is a drop in production,” Burnett said.

The loan rate is set using a formula that takes certain factors into account over a three-year period, including local and terminal market prices and transportation.

The three-year period includes the spring of 2008, when posted prices at U.S. country elevators briefly exceeded $20 per bu.

The loan rate acts as a floor price for participating producers, who can choose to receive a direct payment reflecting the difference between the market price and the loan rate. The money does not have to be repaid.

Based on current markets, farmers would receive a subsidy of $2 per bu., payable after the 2010 harvest.

The U.S. Department of Agriculture had forecast a 13 percent drop in durum acreage in response to low prices, but the new loan rates could change that.

The CWB expects a 25 percent decline in durum acreage in Canada to four million acres.

The board also projects a significant carryover of 2.7 million tonnes into the 2010-11 marketing year, up from 1.9 million a year ago.

U.S. stocks are also high, with the North Dakota Wheat Commission (NDWC) projecting an 80 percent increase in ending stocks to 1.2 million tonnes.

U.S. agricultural publications carried reports of increased interest in durum seed in the wake of the loan rate announcement.

In comments published on the NDWC’s website, marketing director Jim Peterson said with wheat price fundamentals looking bearish, farmers comparing market prices and loan rates might be attracted to durum.

However, he said durum is a riskier crop to grow because of the need to produce high quality.

Peterson said many producers have probably already made up their minds and bought their seed for 2010, which could limit the impact of the loan rate announcement.

About the author

Adrian Ewins

Saskatoon newsroom

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