The durum market continued to hang on to some pretty strong prices and seemed to be in a holding pattern at the end of October.
Producer prices across the region were ranging from $15.75-$16, according to Jim Peterson, market director for the North Dakota Wheat Commission.
“Looking back from where we’ve been, back on Sept. 8, the Minneapolis Durum Index reached a high of $17 and we quickly sold off to the lower $13 range on the index,” he said. “As of Oct. 22, we were back up to $15.50, so we’ve recovered some.
“The question going forward now is a matter of who might blink first,” he continued. “Buyers, domestically, certainly have some coverage, but they’re going to need to come in and buy some more before the end of the year or certainly right after the first of the year. Are producers going to sell at these levels or feel comfortable holding out for further price gains? Typically, the month of November is kind of when the market reaches a fall peak and then either holds steady or trails off through the winter.”
Peterson referred to this year as “an anomaly” just with how tight supplies are in the U.S. and Canada, so typical trends may not mean as much. In 2007-08, a similar tight period when prices were in the double-digits, prices continued to rally into the early part of the next year, but then the world situation was also much tighter.
“I think the big unknown is how much higher are domestic mills willing to press this market to get some coverage,” he said. “I think producers have pretty good staying power. They’ve had a number of other crops to market and have had some government payments, so they’re certainly not at a need to sell from a cash standpoint, but obviously, they don’t want to miss the opportunity at these levels either.”
Looking north at Canada, prices there are 20 to as much as 50 cents a bushel higher than in the U.S. right now. The current estimate for the Canadian crop is 130 million bushels (MB), but there’s a lot of speculation that it may be smaller than that. Updated Canadian production numbers won’t come out until December.
“Certainly there’s a lot of fundamental support under the market just based on sheer supply availability,” he said.
The next big factor is demand and that raises the topic of values and, right now, prices in the U.S. and Canada are still at a notable premium to world values, although they have narrowed somewhat with world values increasing a little.
In terms of nearby demand, Peterson pointed out that importers are pulling out available supplies from Mexico and Kazakhstan and are hopeful for a good Australian harvest, which will take place over the next month to fill some nearby needs.
“But we’ve got a long way to go until we get to 2022 replenishment supplies early next summer. Odds are larger import countries are going to have to come to the U.S. or Canadian market at some point going forward. However, the volume will probably be somewhat limited,” he said.
According to the recent International Grains Council (IGC) estimates, the world durum crop is currently pegged at 1.2 billion bushels. That’s down 5 percent from last year. Production increases in the European Union accounted for a 294 MB crop this year compared to a 264 MB crop a year ago.
“That gives them the luxury to not need as many imports and they're also being a bit more aggressive on exports into North Africa,” he said. “The crux of the contraction took place in the U.S. and Canada.”
Looking at world trade projections, the IGC is looking at about a 20 percent cut in trade to about 265 MB vs. 330 MB a year ago. Canadian potential exports are projected down 40 percent, as is the U.S. The IGC had increases to Mexico, the EU, and Kazakhstan. Even so, the current projection for world trade would be the lowest in close to 20 years.
“On a positive note, the most recent estimate from the IGC was for slightly higher import needs into Algeria, which is still down from a year ago but nonetheless a little more import needs than what was thought just a couple months ago,” Peterson said.
“Going forward, how much more strength our market can maintain is if world values continue to close the gap on U.S. and Canadian prices making it more attractive for importers to look to the U.S. or Canada,” he added.
As to be expected with U.S. durum prices as much as $2 to even $3 above the world market, the current export pace for the U.S. is very slow. Currently, the U.S. has 3.7 MB in sales on the books. That compared to 20 MB at this time last year. The U.S. has sales on the books to four markets at this time including Italy, Japan, Guatemala and Panama.
“Obviously, export trade is not going to drive the market this year until world prices start to improve,” he said.
Looking at domestic food use, USDA is currently projecting a 7 percent cut in U.S. domestic durum grind. Part of that is due to some mills and pasta companies blending in some spring wheat, depending on the product. Even though spring wheat is at some very strong prices, it’s still cheaper than durum values.
“We’ll see if that holds,” he said. “Pasta consumption is still very strong, although it is down from the records set in 2020 with the lockdowns related to the pandemic. We have a very good quality crop and hopefully pasta consumption remains strong.”
Looking at 2022, Peterson anticipates U.S. desert durum plantings to be higher. Last year, producers planted 80,000 acres in Arizona and California. With typical yields at 100 bushels per acre, that’s about 8 MB in production.
“Depending on water restrictions in the area or quota limits due to the drought and a dry down in some of the reservoirs, that may curtail plantings a little, but I don’t think it’s out of the question that they could be looking at 15 million bushels of production next year, maybe even higher,” he said. “But those supplies won’t be available until early June.”
Desert durum producers are expected to start planting the end of the month and continue into January with harvest next summer.
“Producers will continue to sit and watch the market and see what transpires. But prices seem to be holding steady with where they’ve been over the past few weeks,” he concluded.