Canada Markets

Durum Markets Under Pressure While More Could be Seeded

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars represent durum acres seeded in Canada and the United States combined, as measured against the primary vertical axis on the left. The black line with markers represents the average crop-year difference between the National Durum Index and the National Spring Wheat Index, as measured against the secondary vertical axis on the right. (DTN graphic by Nick Scalise)

Rail bids for milling durum in the U.S. continue to grind lower, with January 19 rail bids for No. 1 HAD milling quality durum for Chicago and beyond bid at $7.75/bu USD to $7.90/bu USD for January-through-March delivery. One quick check shows last September nine bids for the September-through-November period ranging from $8.50 to $8.60/bu USD. DTN's National Durum Index, based on U.S. cash bids, slipped $.26/bu to $5.83/bu on Tuesday, with the weekly close pointing to the potential for the lowest finish since September 2010.

Most recent AAFC export quotations or indications of export offers both off the West Coast and from the St. Lawrence have reached a low in early January and show recovery in the week ending Jan. 8, with export indications for No. 1 CWAD 13% protein from the West Coast at $414.04/mt and No. 1 CWAD 12% protein from the St Lawrence at $400.47/mt, increasing $13.15/mt and $5.52/mt respectively from recent lows. Canadian dollar weakness will be a supportive factor in this move.

Another sign that the market for Canadian producers is stabilizing is seen in the Pool Return Outlooks (PRO) released by G3 Canada Limited. On November 26, the Annual Pool PRO (grain marketed between Aug. 1 2015 through July 31 2016) was reported at $355/mt in store Vancouver or Thunder Bay. At the same time, the Winter Pool was reported at 343/mt (grain marketed between Feb. 1 2016 through July 31 2016). On Dec. 17, the Winter Pool PRO was lowered an additional $10/mt to $333/mt. G3s Jan. 19 report include a first look at 2016/17 potential returns, with the Early Delivery PRO (grain marketed between Aug. 1 2016 through Jan. 31 2017) indicated at $330/mt. While the new crop PRO is $3/mt lower than the 2015/16 winter pool, the move lower is slowing. As well, G3 PROs are based on a $.69 CAD/USD exchange, which could prove conservative given some of the forecasts currently being made for 2016.

Despite pressure in this market, producers in Canada and the U.S. could seed more acres this spring. Past work on this market has shown that U.S. producers favor durum when the premium over spring wheat reaches $1.00 to $1.50/bushel over spring wheat. Tuesday's spread was $1.12/bu, representing the difference between DTN's National Durum Index of $5.83/bu USD and the National Spring Wheat Index of $4.71/bu USD. To date, the crop-year average (Canadian crop year) is $1.49/bu USD between Aug. 1 2015 and Jan. 19 2016.

Another sign of continued interest in durum comes from Tuesday's G3 2016/17 pool return outlook commentary, which indicates that prairie producers could swing from cereals to increased acres of soybeans and pulses, although durum acres may not be affected, given the current premium over spring wheat.

As seen on the attached chart, the higher the crop-year average spread between the National Durum Index and he National Spring Wheat Index, the greater the response in planted acres the following spring. The highest average crop-year spread in the years show was calculated at $3.50/bu USD in 2007/08, which resulted in a 1.830 million acre or 26.4% increase in planted acres in 2008/09. A similar situation was seen in 2014/15, when the average crop-year spread was calculated at $3.46/bu, which was followed by a 1.599 million acre or 26% year/year increase in Canada/U.S. durum acres in 2015/16.

Looking back, the third highest average spread shown in the years in question was found in 2008/09, with the crop-year average spread calculated at $1.06/bu. This resulted in a modest 6.6% reduction in seeded acres in the following 2009/10 crop year.

While a great deal remains to be seen surrounding the relationship between the prices of these two crops over the upcoming months, the current average spread of $1.49/bu would be the third highest seen in the years in question, next to 2007/08 and 20014/15 and could signal increased interest in durum acres.


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