The State of the Canadian Durum Market
Historically, Italy has been importing, on average, about 1 million tonnes of Canadian durum per year. But since last fall, Italy hasn’t imported one iota of Canadian durum (AKA they’ve stopped cold turkey). I had suggested a few months ago, back in January, that it was time for Ottawa to launch a formal trade challenge against Italy over its treatment of Canadian durum wheat. Recent news headlines suggest we might be there as the Canadian federal government is is considering taking an Italian policy that requires country-of-origin labeling on pasta, rice, and other products to the WTO. Although a bit late, we welcome this news.
Let’s set some expectations though: such an undertaking is going to require a lot of time. For reference, it took Canada seven years even to secure a favourable outcome on the Country of Origin Labelling issue related to beef against the U.S.! In the meantime, we know that Italy has opted to buy durum instead from U.S., Russia, and Kazakhstan. A few weeks ago, the president of the Grain Union of Kazakhstan said at the Durum Days conference held in Foggia, Italy (main durum-growing region there) that Kazakhstan’s durum exports to Italy are growing significantly. More explicitly, Kazakh durum exports to Italy are up 10-fold over the past 3 years to nearly 240,000 tonnes in 2017.
Coming back home, Canadian durum exports in April grew by 4% month-over-month to 373,900 tonnes. Morocco and Algeria were top export market destinations for Canadian durum taking 114,600 tonnes and 88,000 tonnes respectively. The U.S. came in the third with 74,800 tonnes, which is up 35% from their March purchasing volumes.
On the pricing front, it looks like old-crop durum prices are in a waiting game. Thus, durum prices in major durum growing regions of the U.S. such as Montana are hanging around the $5.50 USD per bushel mark whereas durum prices in major Canadian Prairie growing regions are trying to push up above the $7 CAD per bushel mark.
Overall, the outlook for durum is trending neutral but there are some bullish indicators to take stock of, namely the drier conditions. All things being equal, we don’t think it’s likely to see massive price swings in the durum market during the first half of the growing season. This is mainly attributed to the fact that no buyer can effectively speculate in the market. Comparably, anyone can quickly get in and out of playing in the corn or canola or wheat market via the futures.
Yes, we know buyers will often hedge off the Minneapolis spring wheat contract when buying durum, but if you want to take a bet on a market like durum, you have to literally contract the physical production - a bet that many aren’t willing to make. That’s why, while the highs of the spring wheat market were seen in the first week of July last year, the highs of the durum market weren’t seen until early August.
Of course, if we see dry conditions continue to limit the growth of the durum crop in Western Canada and the U.S. Northern Plains, you might see some small bets made by buyers. However, it’s unlikely that these bets will be too big. Thus, the price swings in the near-term will likely be limited (unless there’s a demand spike). Where more enhanced volatility is likely to be seen is closer to harvest time in August or September (similar to last year).
President & CEO | FarmLead.com