- It feels like, other than Japan and North American millers, everyone is willing to work with a base No. 3 CWAD
- This demand shift may only become fully transparent when supply and quality normalize
- Using a 25-year average, about 50 to 55 per cent of Canada’s durum crop has graded in top two grades.
Last week, Algeria completed a durum tender with a traded price of roughly US$265 per tonne landed. This price is the low of the crop year. As a comparison, three months ago, we noted here that Algeria paid US$335 to $345 per tonne landed. At least 200,000 tonnes traded this time with trade advising durum will originate from Canada, and likely will be shipped from Vancouver given that shipping slots are March 16 to April 30.
This sale is further evidence of how demand patterns have shifted. Traded was No. 3 grade Canada western amber durum, minimum 60 per cent hard vitreous kernel, with a maximum of two parts per million vomitoxin (same as what traded in November). Algeria is typically a No. 2 CWAD minimum 75 per cent HVK durum buyer.
Going forward, focus should soon start to turn towards 2017 supply prospects. Most anticipate modestly lower seeded acreage in Canada and the U.S.
Relatively high Canadian prices for several years has arguably changed how importers buy, quality they buy and who they buy from. Right now, it feels like, other than Japan and North American millers who must have higher quality from Canada, everyone else is willing to work with a base No. 3 grade CWAD.
Other examples include No. 3 CWAD minimum 50 per cent HVK to Italy, No. 3 CWAD minimum 70 per cent HVK to Peru or Morocco. This demand shift may only become fully transparent when supply and quality normalize. At that point, expect spreads between grades to, on average, be tighter than before. Higher grades will likely move down to lower grades because fewer buyers are willing to pay up for quality.
What’s the demand profile for those who absolutely must have high quality? About 1.2 million metric tonnes.
- Japan: usually good for 200,000 tonnes
- Canada domestic milling: about 200,000 tonnes plus 50,000 tonnes products
- U.S. exports: 550,000 tonnes is 10 year average
- Seed: about 200,000 tonnes
Using a 25-year average, about 50 to 55 per cent of Canada’s durum crop has graded in top two grades.
Assuming durum from this sale is shipped from Vancouver, US$265 per tonne landed Algeria less $30 per tonne ocean freight with a currency conversion of US$1 equals C$1.31 is about C$308 per tonne loaded boat Vancouver. Approximate cost for rail freight, margin, risk, are subject to market condition variables, Canadian Grain Commission fees is about $90 per tonne, creating a rough back-off delivered Saskatchewan elevator price of about $218 per tonne or about $5.90 per bushel.
$5.90 per bushel represents value for a No. 3 CWAD 60 per cent HVK, normal protein. For this exercise, protein value in country isn’t important because blending is required to get such a grade. Every other mid-grade quality permutation in the country becomes relative value to this benchmark in accordance to blending attributes.
The exception is high vomitoxin durum that is priced as feed all day long (example max 10 parts per million vomitoxin worth about $3 a bushel delivered Saskatchewan elevator), and a segment of high quality No. 1 CWAD that is periodically priced to service the domestic milling market. The No. 2 CWAD leans more towards establishing a mid-grade blend value than standing on its own two feet as high quality demand value plays.
Mexican origin new crop becomes available in about May. It typically is a higher HVK lower protein product, but is a supply that works well into Italy.
Going forward, focus should soon start to turn towards 2017 supply prospects. Most anticipate modestly lower seeded acreage in Canada and the U.S. versus 2016. Reaping a decent quality outcome is important because beginning inventory of like supply is snug. That said, we must be aware that demand patterns have shifted.
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