2017 Durum Wheat Market in Review
When we started 2017, the market faced a record durum wheat crop in Western Canada and one of the biggest and best quality durum crops ever across the border in the U.S. More specifically, thanks to nearly 6.2 million acres planted in 2016, Western Canadian farmers harvested a record 7.76 million tonnes of durum wheat. Late-season rains/snow pushed a lot of grain into the feed market though.
In fact, according to Ag Canada, nearly 2.1 million tonnes of the 2016/17 Canadian durum wheat crop went into feed, waste, and dockage column. That was nearly 7 times what went into that same column a year before the 2015/16 crop. While Canadian durum exports were strong at a little more than 4.5 million tonnes, it still meant that there were almost 1.9 million tonnes of durum still in the Canadian pipeline by the time the crop year calendar turned into 2017/18.
Accordingly, the Canadian durum stocks-to-use ratio hit a multi-year high of 27%. In the U.S, 2016/17 ending stocks sat at just 36 million bushels (or just under 1 million tonnes). That was up nearly one-third compared to the previous year.
Why would 2016 numbers matter for 2017? Well, available North American durum wheat stocks sat at nearly 3 million tonnes as the crop year calendar headed towards 2017/18. And so, prices sucked as 2017 crept along. And thus, 2017/18 acres dropped.
Lower 2017/18 Durum Wheat Acres, Production
"We don't expect wheat prices to improve too much in 2017, but there will be short-term rallies that will certainly prove profitable. This means selling into strength and making incremental sales as the price goes up – getting greedy will burn you, and you'll be kicking yourself later (perhaps you are already after missing making sales in November / December?)”
The best prices in the first five months of 2017 came in January. As durum prices trickled lower after the January highs, there was intuitively less interest in planting durum in 2017. In Canada alone, durum acres fell nearly 20% year-over-year – or nearly 1 million acres – to 5.2 million. In the United States, the decline was less pronounced.
However, the lower acreage was compounded by the dry conditions in the American Northern Plains and southern areas of Western Canada. More acutely, when you don't get rain for literally anywhere between 5 – 8 weeks, you can't grow much of any crop. Average durum yields in Canada fell 28% year-over-year to 35.3 bushels per acre. That’s also 16% below the five-year average of 42 bushels per acre. As such, Canadian durum production dropped 36% year-over-year in Canada to just under 5 million tonnes.
In the U.S., it was worse, with just 25.7 bushels per acre coming off on average. That’s down about 40% from both the previous year and five-year average of 44 and 42 bushels per acre, respectively. Across the border in the U.S, durum wheat production fell about 28% from last year and nearly 50% from the five-year average. This meant that a little less than 1.5 million tonnes, or just 54.9 million bushels were able to get harvested.
Obviously, echoes of 2013/14 durum prices were running rampant. But the ideas of $12 USD and $15 CAD/bushel durum wheat was unfounded, mainly because of the amount of durum still left in the pipeline. This is something we warned about very specifically in the 2017 half-time grain markets report. In fact, I timestamped in early August that the high durum wheat prices wouldn’t stick around and that one should be taking advantage of those opportunities. Back then, we saw $10 and even some $11 CAD handles for #2 or better CWAD trading on the FarmLead Marketplace.
What Now for Durum Prices in 2018?
Going into 2018, there are 6 different factors that we have identified in the newest FarmLead product, GrainCents, as either bullish, bearish, or just noise for durum prices. We know again that there’s a decent carryover in 2018/19 of just around 3 million tonnes of durum in North America. That’s suitable for the most part, especially considering the good quality available in the pipeline.
From an export standpoint, Canadian durum shipments are fairly similar to last year at nearly 1.6 million tonnes shipped out through December 31st (reminder, this is for the 2017/18 crop year). Domestic disappearance is much higher though, according to the Canadian Grain Commission. Through December 31st, 354,000 tonnes have been used up domestically. But producer bin doors are locked as just 1.61 million tonnes have been delivered by Canadian farmers – a drop of 23% year-over-year.
Will we see higher prices in 2018? The one thing that could propel durum wheat prices is the interpretation of drought monitor reports of the next few weeks and months. We’ve noted how dry it is in the past and if stays cold without much snow, it creates further soil moisture risk for hard red spring wheat areas. To be clear; we’re not pulling the trigger yet, but durum wheat markets have a history of being volatile.
And in that volatility is where we capitalize for better durum sales opportunities.
President & CEO | FarmLead.com