- Deteriorating crop conditions in Montana, the Dakotas and into the southern Canadian Prairies has garnered trader attention
- If North American durum yield is lower this year, a higher quality crop could still result in more market-ready product
- There’s been enough good and bad in the growing season to eliminate the extremes of either a wreck or bumper crop
Over the past six weeks, spring wheat has been the bullish beacon of the overall wheat complex. Heck, grain markets in general. And given a rapid $1.30 a bushel rally during this time, spring wheat that has outdistanced all grain markets.
Deteriorating crop conditions amid heat and drought in the key northern American states of Montana and both the Dakotas, extending up into the southern Canadian Prairies has garnered much trader attention.
Durum muted response
Quietly in the background of the discussion, though, is durum wheat that shares the same principal North American growing region.
The response from the durum market to date has been more muted compared to the rambunctious price action seen in spring wheat. Durum pricing has performed positively, but more cautiously, to the developing drought conditions of this region. That's due in part because end-users have so far remained somewhat reluctant to chase the market higher.
The response from the durum market to date has been more muted compared to the rambunctious price action seen in spring wheat.
There is a lingering perception that even if North American durum yield and production is lower this year, a higher quality crop would still result in more market-ready product this autumn compared to last year’s crop.
Tightening supply and demand
If that market sentiment remains, the tightening 2017-2018 supply and demand balance on durum is likely to evolve into a more realizing price appreciation path. That's opposed to the spring wheat rally, which simply jumped right out in front of the crop threat news.
United States 2017 durum production seems to be gravitating towards the two million tonne range, down from 2.75 million tonnes last year.
The United States Department of Agriculture reports the northern U.S. durum crop continues to show stress from the ongoing drought conditions, although the primary production regions did receive some precipitation. The latest crop condition ratings in North Dakota saw a notable increase in the poor to very poor category, at 21 per cent, up from just eight per cent the previous week. Only 18 per cent is rated good to excellent, down marginally from 20 per cent the previous week. No condition ratings were available for Montana, but the primary production region remains overly dry.
Canadian durum production potential could still reap an average/trend type yield, resulting in production somewhere around five to 5.25 million tonnes. But final results depend so much on weather during the next six weeks. There’s been enough cumulative good and bad during the growing season so far to probably eliminate the extremes of either a wreck or bumper outcome.
All other variables equal, that positively changes the global trading matrix by about 0.75 million tonnes. As a stand-alone event, that's deserving of adding about $1 a bushel to price from wherever it was headed before. The U.S. durum price grid should reflect an import price to incentivize accelerated inflow from Canada and reduce discretionary exports.
Looking at the world durum crop, the latest gauge from the International Grains Council still called for slightly smaller production than a year ago, due solely to reduced acres in the U.S. and Canada and a lower yield outlook.
The IGC still pegs Europe with fairly stable production compared to last year. However, hot and dry conditions in key production areas of Italy, southern France and Spain are becoming an issue now.
For now, market attention has only quietly responded to the emerging European weather issues and their potential impact on 2017 durum production prospects.