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Prairie durum prices to weaken further

Prices for durum wheat in Western Canada have weakened recently and are expected to continue to move lower going forward.

Much of the recent price weakness is linked to the supply-and-demand situation, as Canada is expected to produce a very large crop this year, said Neil Townsend, director of market research with CWB in Winnipeg.

According to Statistics Canada, the 2013-14 durum crop is expected to produce 5.8 million tonnes, 1.2 million more than in 2012.

There are also fairly good supplies in other parts of the world, including the European Union (EU) and the U.S., said Townsend.

“The EU also had a fairly good crop,” he said. “And the U.S. didn’t have a big crop, but they have a pretty healthy supply overall.”

And, though there is an increase in supply, the demand for food-quality durum isn’t growing, so prices have to move lower in order to compete in other markets.

“There has to be some sort of outlet for durum to get sucked up and that means it has to get into regular wheat or into the feed channels,” said Townsend. “So, it has to get a little bit more competitive to that.”

“Lower-grade durum has to be moved into animal feed and stuff like that, and that means it just generally has to get cheaper.”

And there’s more of the lower-quality durum wheat around this year, as there were some issues with the Canadian crop.

Townsend said there were very large yields for Canada’s durum crop this year, and generally when that happens, the protein average goes down. The crop also had issues with untimely rains in some regions.

“The proportion that is No. 1 and No. 2 (quality) is lower than would be desired, so there’s only about 35 per cent of the Canadian durum hit the No. 1 and No. 2,” he said. “That means the bulk of it is No. 3 and No. 4, with a little bit of No. 5.”

Most of the higher-quality durum stays in North America, with the mid-range going into Italy, Townsend said. There should still be enough of the higher-quality durum to meet demand this year.

But because there won’t likely be any new demand created for food-quality durum this year, prices should continue to drift lower, with lower-quality discounts becoming steeper.

“There is no growth in food-grade durum demand,” said Townsend. “In North America, there’s also some slight pressure with people going away from eating a lot of carbohydrates.”

What happens in U.S. spring wheat futures markets will also have an impact on durum prices going forward, because there isn’t an actively-traded futures market for the crop.

Cash bids for durum in Western Canada ranged from $5.65 to $6.11 per bushel on Tuesday, according to Prairie Ag Hotwire. That’s down about $1.50/bu. from a month ago and $2/bu. from the same time in 2012.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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