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WMR-USDA Projecting Tight Durum Stocks, and Stable HRS Stocks

By: Jim Peterson
Posted: Feb 06 2020

The most recent USDA supply and demand estimates, released on January 10, paints a much tighter supply situation for durum, and a stable situation for HRS.  Relative to earlier projections released during the harvest period, both classes have seen more price supportive trends in supply and demand data, on lower import projections and higher demand, as well as smaller production estimates due to abandoned or unharvested acres.
For durum, demand has improved dramatically for exports, with stronger than anticipated demand from Italy, for low to mid quality supplies.  The current projection of 40 million bushels is 82% higher than last year and the second highest level in the last 10 years, or since 2010. Domestic use is unchanged from last year with steady food use, and slightly higher seed use offsetting lower feed use.  The current projection seems to understate feed use, with a significant share of the 2019 harvest moving directly into feed channels during the harvest period.

Projected imports of durum are 40 million bushels, 23% lower than the past two years.  About 20 million of the imports are in the form of semolina or pasta products, with Canadian durum direct to U.S. mills accounting for the balance. This year’s lower levels are all on account of less imports of Canadian durum, due to 2019 harvest challenges impacting both production and quality there.  Some analysts expect Canadian shipments to pick up in the spring and early summer months, but through December, U.S. imports of Canadian durum where just 3 million bushels, down 70% from last year.

Stocks of durum in the U.S. could approach 20 million bushels by June of 2020, the lowest level since June 2008.  Final stocks will be dependent on the trends in both exports and imports during the remaining four months of the marketing year.  If the projection holds true, it certainly points to a potentially supportive price situation for producers going into the 2020 season.  

Paralleling the U.S. durum stocks trends, are the declining stocks in both Canada and the EU.  As the accompanying chart illustrates, stocks in the three countries combined may fall by nearly 40% from a year ago, and approach the lowest level in seven years. Prices in all three countries remain at higher levels than a year ago, but are still not fully reflecting the potential tightness buyers could face as the 2020 season unfolds.  The primary reason for this, is that most buyers and exporters anticipate a significant increase in durum acres across both Canada and the U.S. this planting season.
Hard red spring supplies are steady with a year ago, due to the large on-farm inventories in June of 2019, which mitigated the smaller production this past year, and a notable drop in potential imports from Canada.  Demand is just slightly below 2018 levels, on lower domestic use, but there is potential for further increases in demand projections by USDA in the next few months.  This would be beneficial in cutting further into June 2020 stocks estimates, which are currently projected to hold steady with June 2019, at 264 million bushels.  

As of January, export sales are about 10% ahead of a year ago, better than USDA’s projection to hold steady.  Recent drops in U.S. wheat export values should help U.S. HRS exports remain competitive with Canada into Asia during the next few months, and the smaller Australian crop will support sales into South Asia.  Domestic demand is currently projected to fall 4% from last year, solely due to one-third less feed use compared to 2018.  This contrasts with the increased level of HRS which moved into feed channels this past fall due to quality impacts from untimely harvest rains. It is likely USDA will raise feed use in upcoming reports.  

Domestic food use is projected up from 2018 levels, and the highest in five years, as domestic mills are using a higher percent of HRS to blend with the lower protein HRW crop.  Widening price spreads between HRS and HRW may challenge this in some sectors of the country, but year-on-year increases should hold.  Tied into domestic mill demand, is lower import projections from Canada this year.  USDA is currently projecting a 25% drop from last year and well below two years ago.  The current projection may even be too high for this year, as through December, U.S. imports from Canada were just 8 million bushels, or down 40 percent from the 2018 pace.

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