Canada Markets

A New Jersey durum miller presenting at last year's International Durum Forum in Minot, N.D. suggested that the day would come when the mill would pay $15/bu for durum. He didn't have to wait long, with U.S. miller bids for high quality durum currently in the $19 to $21 U.S. range.

There's a perfect storm facing buyers, with the global crop pegged at 33.7 mmt, 11.4% below last year and the smallest crop in 13 years. Combine this with the fact that most major global producers are facing quality issues, while at a time when global trade is forecast at a record high of nearly 8.2 mmt.

On Oct. 30, the CWB reported estimates which suggest 4% of Western Canada's 2014 crop is grading a No. 1 CWAD, while a further 19% of the crop is grading 2 CWAD. This has been coined the worst crop in Canadian records. While the Canadian Grain Commission is still in the process of assessing quality data for the crop, its most current protein assessment as of Oct. 28 provides a breakdown of 117 out of 877 total samples submitted being a No. 2 or better, which is just 13.3%. The mean Prairies protein level across all grades is 12.9%.

Price ranges on both sides of the border are wide, depending on quality. Reports from the northern States suggest that price can range anywhere from $4/bu for feed up to $16/bu for the highest milling qualities. DTN's price maps show $15 bids south of the line, while Wednesday's National Durum Index was reported at $11.77/bu, which represents a lesser quality.

The same can be said for the Prairies. Lower quality samples may be looking for a home in the feed market, with today's reports indicating feed wheat at $183/mt ($4.98/bu) delivered southern Alberta, a $4/mt discount to barley, with a maximum 10 ppm vomitoxin allowed by some buyers. At the same time, there's at least one unconfirmed report of a Prairies producer receiving more than $16/bu loaded car, although getting the cars spotted is the obvious challenge given the current backlog in producer cars.

Whether durum prices continue to strengthen and how long it will last will be tied to the buyer's need to stick to the higher qualities. As mills come to terms with using lower qualities, the current trend in prices may slow. The CWB's estimates suggest a further 37% of the crop is grading a 3 CWAD on the prairies, but perhaps more important will be the combination of protein, falling number, HVK and vomitoxin levels.

The attached chart shows the growing spread between DTN's National Durum Index and the nearby MGEX spring wheat contract (weekly chart). The spread has grown from minus $1.14/bu in early May (durum trading under the nearby spring wheat future) to $5.96/bu over the spring wheat future. This is seen in the move in the red line in the lower study. This spread is just pennies away from testing chart resistance of the June 2011 high of $6.05/bu.

While the circumstances may be different, the 2011 spread quickly collapsed, while a similar move in late 2007 into January 2008 also lead to a sudden collapse.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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