Durum trades at US$335 to $345 per metric tonne

Market Focus

Highlights

  • A willingness to accept a lower grade reflects price sensitivity and is part of the demand rationing process
  • It feels like price has hit a temporary wall, with users opting to see how it goes
  • Canada is likely to remain slow at creating usable blends in the next few months

Last week’s Algeria durum tender came and went with upwards of 200,000t trading around US$335 to $345 per metric tonne landed Algeria. It was a mix of Canadian, U.S. and Mexican origin. Grade detail was unavailable but U.S. origin was supposed to be a No. 2 hard amber durum with minimum 75 per cent hard vitreous kernel specification, with Canada either a No. 3 Canada Western amber durum minimum 60 per cent HVK or No. 2 CWAD minimum 65 HVK.

Algeria is typically a No. 2 CWAD minimum 75 per cent HVK durum buyer. A willingness to accept a lower grade reflects price sensitivity and is part of the demand rationing process. That tendered price should translate into a generic No. 2 CWAD delivered Saskatchewan elevator indication of approximately $8 per bushel, and mid $7 per bushel for No. 3 CWAD.

While there should be enough durum supply on paper that can be cherry-picked, cleaned or blended, the difficulty to create milling supply fast enough is a process that should keep Canadian export offer pricing somewhat passive for a while yet.

A generic No. 3 CWAD traded high US$255 per metric tonne landed Tunisia in August, so price is up US$80 per metric tonne since. Price discovery is all about satisfying a low vomitoxin specification, which for Europe cannot exceed 1.75 parts per million. Post tender, it feels like price has hit a temporary wall, with users opting to see how it goes, looking anywhere and everywhere for product, which shall include Australian and Mexican origin.

Durum outlook is nontraditional and mainly dependent on one variable: how fast can or will Canada create market-ready usable milling supply into spring? If slowness persists, users will likely be forced to push harder one more time in the New Year, but in doing so create a harder crash later as demand patterns shift even further away from needing high quality and as much Canada origin durum to survive. If Canada can create usable blends faster with offers deepening, then price slowly sags.

So what will it be? Best guess is this:

Canada is likely to remain slow at creating usable blends in the next few months for a couple of reasons. One, modest blending/cleaning needs to occur to make desirable milling product due to unusual volume of raw product that contains a vomitoxin threshold in excess of 1.75 ppm.

Two, exporters are expected to be vigilant and take appropriate handling risk margin to justify executing. With vomitoxin issue recognized worldwide and sampling variability risk high within same shipment, trade is likely biased to ship with a greater vomitoxin-cushion (example 1.5 ppm to Europe). Risk of cargo rejection is too costly.

In summary, while there should be enough durum supply on paper that can be cherry-picked, cleaned or blended, the difficulty to create milling supply fast enough is a process that should keep Canadian export offer pricing somewhat passive for a while yet. And, in doing so, defer a negative price trend. Time and sustained wide price spreads between quality can get the job done. The fix can be supplemented by passive demand, which likely includes traditional Canadian origin milling demand being shaved by 1 MMT (down 20 per cent).

In the meantime, it’s the quality within the quality and how trade and farmers perceive ability to manufacture a desirable product by buying or selling the right attribute properly. This is more relevant than the headline strong flat price story for high quality.

Remember that trade and valuation is subjective. Poor quality durum is finding value domestically or offshore at various vomitoxin part-per-million thresholds. In retrospect, we’ll likely be surprised how fast poor quality sneakily disappears.

Greg Kostal of Kostal Ag Consulting Ltd provides insight on commodity markets and marketing guidance. For more information, please visit www.gregkostal.com.

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