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Durum prices, like other classes of wheat, retreating

Durum

Durum prices, like other classes of wheat and other grain commodities, have been in retreat in recent weeks.

“With durum we still continue to experience the big price retreat. We’ve slipped below $10 at the local level for durum prices,” said Jim Peterson, market director for the North Dakota Wheat Commission. “For average prices across North Dakota, $9.50 to $10 seems to catch a majority of the bids to producers.”

Peterson explained the retreat in prices is based on a couple recent USDA reports that showed a lot more acres were planted than anticipated, and also very high yield projections for this year’s crop, even though it was planted later.

“The market seems to be pretty comfortable right now. It’s backing off as it’s not worried about supplies like it was a few weeks ago, let alone two months ago,” he said.

Looking at recent price trends, Peterson pointed out that durum was close to $13 a bushel in mid-June, so in about one month’s time about $3 per bushel has been taken out of the market.

“It’s all probably on paper. I don’t think there’s been a lot of trading at these levels. There might be some, but the market is just trying to find a balance on where to start prices for the 2022 crop,” he explained. “As long as it continues to hit that comfort zone, and doesn't really trip a lot of buying from end-users, the market may continue to drift lower until we get some kind of production hiccup.”

USDA’s planted acreage report on June 30 showed a 20 percent increase in North Dakota durum plantings, which was higher than expected, and also a slightly higher desert durum planted area. And on July 12, USDA came out with its initial production estimate for U.S. durum of 77 million bushels (MB), which is more than double last year's total production of 37 MB.

“A lot of the trade was expecting something in the low to mid-60 million bushel range. That (77 MB) may be the highest of the year if one speculates that their planted area was too high since a lot of planting was still taking place when the survey was done,” he said.

USDA also projected a yield estimate of 40 bushels per acre for North Dakota, which is rather high given how late the crop is. Montana’s yield estimate is 30 bushels per acre, likely due to the fact there’s been more dryness there throughout the growing season.

“There’s no question that we have pretty good crop potential,” he said, adding the North Dakota durum crop is rated 85-89 percent in good-to-excellent condition, which is a very high level for the crop. In Montana, 59 percent of the durum crop is rated good-to-excellent, but with some nice rains over the last half of June and early July, the crop has shown some improvement.

“The two issues for durum going forward are that it’s still dry in parts of Montana, and with the recent heat the region has had and the lateness of the crop, one would expect maybe a little impact on crop condition going forward,” he said.

“With the humidity that we’ve had, disease threats have certainly been heightened and producers are applying fungicides, but there’s already a lot of input costs into this crop, and with the market retreating, it adds to that dynamic a little bit,” he added. “But until the market sees a notable shift in crop conditions, we’re probably going to be under pressure.”

Some positives for durum going forward, which are longer-term until we get past the U.S. and Canadian harvest, is that in Europe it’s extremely dry and there’s been a lot of heat there, according to Peterson.

“Of course, the crop there is further along than ours, and it’s been good for harvest conditions, but in Italy, the millers association has come out with some recent concerns of further cuts to their durum crop and, for Europe as a whole, there are some analysts that are expecting they could be at a historical low for total European durum production,” he said.

“Obviously, that points to higher import needs from Italy, as well as the balance of Europe. And we know that North Africa, especially Morocco, is already seeing a smaller crop, so their import levels will be higher. But it may take time for that to play out,” he added.

In Canada, 58 percent of the durum crop in Saskatchewan is rated in good-to-excellent condition, with 10 percent rated poor-to-very poor. The region still has some pockets of dryness, similar to Montana. In some of those areas the crop was quite a ways along before it received some rain, so any yield improvement might be “capped” a bit.

“The bottom line is they’re looking at pretty good crop prospects, as well, so we expect them to be aggressive on the export front,” he said.

USDA came out with its first supply and demand projections for the U.S. crop on July 12. USDA is projecting U.S. durum supplies at 143 MB, a 40 percent increase in available supplies to the U.S. market this year, compared to 104 MB last year.

“Even though we started the year with lower inventories due to the drought last year, the more than doubling of production, as well as about a 10 percent increase in imports, is leading to the increased supplies,” he explained.

“On a positive note, demand should be up almost 35 percent from a year ago, and that’s including a rebound in food use for pasta,” he continued. “Where the big increase comes is in potential exports with 30 million bushels expected this year compared to 14 million last year. A lot of that is predicated on Italian buying going forward into the fall months, as well as North Africa.”

Looking at U.S. durum exports, there is 5 MB in sales already on the books, which is three times higher than a year ago.

“Granted, it’s a small number, which maybe skews the percentage increase, but we are off to a positive start,” Peterson said, noting that sales to Italy are higher, which is driving it. “It will come down to some price and quality competition between the U.S. and Canada, depending on how each country’s crop finishes. As of right now, the market seems pretty content with crop potential and is not as concerned about the lateness of the crop as it was a month ago,” he concluded.

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