Will Durum Be Golden? Check Out Market Watch

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A look at what lies ahead for the Canadian durum market in 2015-16


Durum certainly had a wild ride in 2014, starting out in the spring at price levels below $5.50 a bushel and ending the calendar year at prices close to three times that amount.
As we turned the corner into 2015 prices once again collapsed, heading back to approximately half the value of the highs by seeding time. By June 2015, durum prices once again headed higher, hitting the $10-a-bushel level by the end of July and only backing off slightly as we moved through the harvest months. So now that we have completed harvest, can we expect durum prices to jump higher going into 2016?

The short answer is maybe, but not necessarily. To understand why, let’s look at what powers the world durum markets.
The first thing to know about the durum market is that, for the most part, Canada drives the world durum bus. While we are not the world’s biggest durum producer, we are, by a large margin, the world’s biggest durum exporter. In most years, Canadian durum exports represent 50 to 70 percent of world trade.

Secondly, in the durum market, North Africa (Algeria, Morocco, Tunisia and Libya) is, as a group, the world’s biggest durum importer. On an individual country basis, Algeria tends to battle it out with Italy as the biggest importer on a year-to-year basis.

A third interesting twist with the durum market is that two of Canada’s biggest durum export competitors, the EU and the U.S., are also two of the world’s biggest importers of durum, which creates some interesting trade and pricing dynamics. Both the U.S. and EU switch back and forth between being net exporters of durum to be net importers of durum, depending on production and supply availability within their own country or region.

Finally, we need to take into account that getting good information on the durum trade and supplies is somewhat difficult as many of the key players keep their activity as secret as possible. Also, a number of countries that trade in durum have only rudimentary reporting systems, such as Algeria, Morocco, Tunisia and Libya. Other countries such as Kazakhstan, Syria, Russia and Turkey also participate in the durum market, although questions often arise as to durum versus wheat trades. Even with major grain buyers such as China, there are discrepancies between what UN import records show and North American export numbers reveal.

For the most part, government organizations such as the USDA do not report on world durum trade because of the difficulty in obtaining accurate numbers. Although, over the last couple of years, Agriculture and Agri-Food Canada (AAFC) has started to provide a brief sketch of world trade in their monthly publication, Canada: Outlook for Principal Field Crops. The accuracy of these numbers is sometimes open for debate.
As of September 24, AAFC was seeing another tight year in terms of global and Canadian durum supply. 

AAFC’s July world durum carryout forecast is very tight, as last year’s carryout was the lowest in the last 15 years and this year’s carryout is only 100,000 tonnes above last year’s level.
AAFC’s Canadian durum carryout forecast is also very tight, implying the lowest carryout in the last 15 years and 300,000 tonnes below last year’s carryout.

StatsCan makes its final estimate of Canadian Grain production on December 4 of this year, so the supply and demand estimates could be revised significantly prior to the end of the year.
A negative to increasing durum prices this year is the large increase in U.S. durum production, currently projected at 2.2 million tonnes up from 1.5 million tonnes last year. Last year, the U.S. was a net importer of 0.4 million tonnes of durum whereas this year they are currently projected to have approximately equal imports and exports. The EU also increased durum production this year to 8.0 million tonnes versus 7.6 million tonnes last year and are projected to be net importers of 0.6 million tonnes of durum, down from 1.6 million tonnes last year.

On the positive side, Canada’s exports need to decline 1.3 million tonnes because of the reduced supply, which still leaves Canada supplies at 15-year lows, which should be very positive for durum prices.
Another factor that needs to be watched closely is durum imports, especially into North Africa, as this provides an indication of the accuracy of production estimates for this region. North Africa durum imports will play a significant role in Canadian durum price direction.
Can this year’s durum crop be golden? At a minimum, it should shine fairly brightly. As for the 
crop being golden? This is still a possibility.

If you need help weaving your way through the limited durum market information, changing durum production forecasts or shifting prices, contact lklusa@agritrend.com.

About the Author
Lawrence Klusa

Lawrence Klusa is a marketing coach with Agri-Trend Inc. He has spent over 25 years working as an agricultural consultant and grain industry manager - 10 of these years are a commodity risk manager primarily trading wheat futures and options on the US and Canadian futures exchanges. :Lawrence grew up on a farm at Flora, Saskatchewan, He has a BSA with a major in Economics from the University of Saskatchewan and a MBA with major in Finance from the University of Calgary. He can be reached at iklusa@agritrend.com.

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