Spend Matters welcomes this guest article by Joanna Allen of Mintec.
Durum wheat prices have fallen in the last month as global production is forecast to rise. Prices have been on a roller coaster ride over the past year, and all eyes are now on the upcoming harvest.
Durum is a type of wheat with an extremely hard kernel. When milled, it holds together better than other types of wheat and doesn’t break down into a fine, powdery flour. Instead, the result is a granular product called semolina. This is used to make pasta, couscous and some bread products. It is the yellow kernel of durum wheat that gives pasta its golden color.
Global production of durum wheat amounts to approximately 35 million tonnes per year. Canada accounts for 12% of global output and is by far the world’s largest exporter, exporting around 80% of its produce and totalling around 51% of global exports.
Canadian and US durum wheat prices were on a steadily increasing trajectory throughout 2014, driven by tight supply. Durum production in Canada and the US was beset by unfavorable weather during harvest, which lowered quality and yields. As a result Canadian production fell by 20% year-over-year to 5.2 million tonnes in 2014/15 and global production fell to 32.7 million tonnes down 13% year-over-year – a 13-year low.
In March prices fell by 30% due to expected increases in global supplies but rose again throughout June and July, after frosts during planting in May lead to re-seeding in some areas on the prairies. Currently, prices are declining as the harvest gets underway; after a fall of 8% in August, prices are down 10% from the start of the year.
After last season’s exceptionally low production, global production of durum wheat is forecast to rise nearly 12% in 2015/16 to 36.7 million tonnes, and yields are expected to return to more normal levels. Canadian production is forecast to rise by 10% year-over-year to 5.7 million tonnes, driven by a 15% increase in planted area. Although planted area and production are set to increase, small yields and low carryover stocks could mean that overall supply may be down year-over-year. Total US durum wheat production is also forecast to rise this year, up 45% year-over-year to 76.8 million bushels (2 million tonnes). With a larger US crop expected this year, Canadian exports are forecast to fall by 4% in 2015/16.
Now is an important time for the durum market, as harvest time in Canada generally runs through August to October. The better crop expectations have caused US prices to fall slightly below Canadian durum. As ever, all eyes remain focused on the weather.