A Look at the Prairie Durum-Spring Wheat Spread
Another reminder of the bearishness of the global wheat market was seen in the July 23 International Grains Council estimates for the 2020-21 crop year. While the production estimate was revised 6 million metric tons lower in July to 762 mmt, ending stocks were only revised 2 mmt lower and remain at a record 288 mmt. Such a volume would be up 12 mmt from 2019-20, while representing 38.4% of global use.
Earlier in the month, the USDA revised estimates in the same direction, although global stocks for 2020-21 are estimated at a record 314.84 mmt, up 17.72 mmt year-over-year.
As durum data gets lumped into the global all-wheat data, the situation is very unlike that of wheat when durum is excluded. In Agriculture and Agri-Food Canada's July Canada: Outlook for Principal Field Crops report, the agency quotes International Grains Council data that shows global production of durum increasing by 400,000 metric tons to 34 mmt in 2020-21, while global ending stocks were forecast to fall by 1.2 mmt to 6.5 mmt, or the lowest reported since 2007-08.
IGC tweets following this week's July IGC report shows an upward revision of 200,000 mt in production to 34.2 mmt, which remains 6% below the five-year average. A world production chart shows the forecast for 2020-21 to be the second-smallest in six years, only slightly higher than the 33.6 mmt estimated for 2019-20. IGC data shown on Twitter shows a 1.2 mmt upward revision in ending stocks, which would result in stocks unchanged from the 7.7 mmt in 2019-20, but still historically tight.
The attached chart shows the durum/spring wheat cash price spread for southwest Saskatchewan. Over the 2019/20 crop year, this particular spread traded as weak as $16.14/mt in early August (durum over spring wheat) to as high as $63.27/mt on April 17. Since late March, this spread has traded sideways while in a range spanning $18.89/mt. The July 23 close of $52.96/mt falls closer to the upper end of this range, while just $10.31/mt below the crop year high.
While not shown, a longer-term view of pdqinfo.ca data that includes the 2016-17 through 2019-20 crop years would indicate that the current spread is relatively close to the widest shown since January 2017, when it was reported at $64.10/mt. This level was reached soon after the spread reached $90.82/mt in November 2016.
While prairie crops are looking good and AAFC is forecasting a year-over-year increase in durum exports and ending stocks, this spread may continue to trade sideways, although it does bear watching as a potential warning of growing concerns in the global market.
Cliff Jamieson can be reached at email@example.com
Follow him on Twitter @Cliff Jamieson
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