After a period of moderate strength in November, durum weakened slightly in early December, with prices falling back to $9.50 a bushel in most locations for premium durum.
Whether it’s just seasonal weakness as the end of the year approaches and factories slow down, or perhaps an expected drop in consumption during the holidays with other foods being served during this period, or simply a reflection of the market, there was general weakness in many commodities in early December.
“It rallied a bit. That was probably enough to increase grower sales in the United States and Canada, which was enough to meet the needs of nearby pipelines,” said Jim Peterson, director of marketing at the North Dakota Wheat Commission. “To put it into perspective, the week before Thanksgiving, prices were around $9.75 to $10 in many places, but now they’re back down to $9.50. The low at harvest time was in the low to mid $8 range, so we certainly had some nice appreciation.
According to Peterson, some other factors that may have impacted the market are sympathy for other grain markets like corn and other wheat markets which have also seen declines. Additionally, this is the time of year when the Great Lakes are about to freeze over and it is realized that any new demand could be nearing the end of winter. Crossing the gulf could also be a challenge due to low water levels in the Mississippi River.
“We can transport it to the end of the St. Lawrence Seaway, but the railways are still having a little trouble. All of this makes it harder to compete for export demand,” he said.
Despite the recent setback, there are still plenty of positives in the market. Even though there have been bigger harvests here in the US and Canada, supplies are still not robust around the world, Europe had “a very tight harvest” last year, and the drought continues to be a concern for much of Europe. Also, in North Africa, conditions are still quite dry, especially in Morocco.
There are also headwinds for the market, at least from a US export perspective.
“Unfortunately, we are probably still among the most expensive durums in the world market,” he said. “We have excellent quality, which certainly helps, but it will be more difficult to obtain some of the large export demand, unless we see prices in Europe strengthen strongly or Canada increases. its prices a bit.”
Regarding global demand, although there are headwinds with the strength of the US dollar, Peterson noted that in the latter part of November, the US captured some of a recent call in offers to Algeria of about 2 million bushels (MB).
“That may have been part of the strength of the durum market as well, as there are plans to try to get some durum to cover this selloff,” he said.
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Total US durum sales at the end of November were 8MB, up 48% from a year ago. By country, Algeria represents 50% of these sales, Italy 34%, and the rest is made up of some sales in small markets in Guatemala, Japan and a few other smaller markets.
“Hopefully we can continue to see a few more sales of this size over the course of the year,” he said.
To the north, Canada, by the end of November, had shipped 54 MB of durum wheat. That’s about 35% ahead of last year’s 40MB pace at this time.
“They have seen an increase in deliveries from their producers to elevators and we will see what kind of demand they are able to capture over the next few months. I would expect a bit of a slowdown with winter freezing, then more as we approach spring,” he said.
Some of the new market news is that Statistics Canada released an updated production estimate on December 2. The agency reduced the durum harvest to 200MB from the previous estimate of 225MB in August/September.
“So that’s definitely a bright spot going forward. It’s a crop about 10% lower than what the market was trading at. But it’s still nearly double the crop of 111 million bushels. from last year, but the fact that it fell so much from August/September to November is positive for prices,” he said.
“The big problem is that they harvested more acres of durum wheat – 400,000 more – but the final yield of 33.7 bushels per acre was well below the previous estimate of 39 bushels per acre. , which further confirms the drought in southern Saskatchewan,” he added.
Regarding US domestic demand, according to “Milling and Baking News”, for this quarter most pulp mills are covered at around 90%. They are estimated to be only about 65-85% covered from January to March and only 15% from April/May.
Peterson pointed out that factory uptimes are still good and there are still very good price margins in stores. But, with food inflation, there is pressure from the retail side to control prices, which then puts downward pressure on semolina. Still, he anticipates stronger domestic demand this year.
Although seasonally the market has had a slower part of the year, over the longer term there are a few things that offer potential price support heading into 2023, according to Peterson.
“It is still extremely dry in parts of Europe; North Africa, particularly Morocco, is still dry; and with potentially less Canadian crops to compete in the export market, we might see them being a little less aggressive, which would then open the door for us,” he said. “So far, we’ve seen a slight pullback in the market from the November highs, but we’re still trading well above the harvest time lows.”