Is durum on the rise...?

It has been well reported in Profarmer that northern US plains (Nth/Sth Dakota and Montana) and Southern Canadian prairies have been very bloody wet.! It all started with excess snow over the winter and now excessive rains and low temperatures exacerbating the problem.

The USDA has recently estimated that the planting of Nth Dakotas of spring wheat has reached 86%, whilst only 44% of durum wheat is in the ground. Much of the state's durum crop is in areas hit hard by flooding. North Dakota is intending to plant 1.6 million acres of durum. So with the final insurance planting date past or approaching, there is still 1.2 million acres of durum left to be planted. Most growers would take out insurance policy instead of risking sowing the crop.

It has been reported that the northwest corner of the state (largest growing region) only 21% has been planted. North Dakota on average produces about 67% of the nation's durum, whilst Montana over the border producers 15%. So really future prospects for durum isn’t that great for Nth America, so the market will be keeping a very close on this.

Stats Can (similar to our ABS) released their acreage report last week. Although intended acreage has increased from last year (4.3 million acres vs 3.15ma) the survey was done in late May, before the heavens opened and persistent rain fell diminishing any hope of the ‘intended’ acreage to be planted. At that period, growers were still optimistic about getting crops into the ground before crop insurance deadlines kicked in. Durum is typically grown along the southern regions of Saskatchewan, and that area was generally a lot wetter than normal in their spring, which caused gorwers to seek out alternative crop choices (if any at all). So really there still could be another 1 ma pulled form the final number, but we won’t find out until the final survey is done August.

Currently durum is running at a $4/bu premium over spring wheat on the world market. Durum premiums to spring wheat have increased dramatically over the past few weeks, as we have had those planting difficulties mentioned above. Delivery for durum for Nth Dakota silos for the upcoming harvest in July/August is at $14/bu or $A500/t..!

Unlike the fall in bread wheat values, durum wheat continues to remain firm, with new crop Newcastle gaining $10 over the week ($346). Durum is now at a $88 premium over the best APW MG contract, and if you include the average APH1 premium of $24/t, this represents a $64/t premium. A high spread historically. For SA, we have only been tracking new season prices for a coupe of days. Today’s best price at Port Adelaide was AWB/Cargill both on $305/t. Compared to today’s best APW MG (Viterra @ $264). The H1 premium is $18, so this bread wheat spread over durum is only +$23/t.

Taking in the above information, durum prices could really rally going forward, with low stocks in both Australian and North America as last years harvest were both curtailed by wet weather. A lot will rest on the growing prospects in Nth America and Canada, we will know further information as the season progresses.

Attractive forward prices for Oat, but is there still upside?

News on the ‘ol oat trade is sparse at best with the trade not as transparent in regard to price discovery as say wheat or canola. With the domestic trade dominated by a handful of mills and exporters, so what (if any?) are the global impacts that will influence prices leading into next harvest?

Australian Crop Forecasters have estimated that this season sown area is 832,650/ha, which is down from the 5-year average of 979,861ha. However based on heavy summer rain, the early forecast is for a national yield of 1.55t/ha (1.29mmt), which is up on the 5-year forecast of 1.22mmt.

Looking at international production, the European Union has been in a downward spiral for the past 30 years, with production forecast to climb to 7.6mmt from last years record low but still behind the five-year aver of 8.3mmt. Major producing counties tonnage is forecast higher, and if this continues surplus tonnage for export may be available.

Stats Can released their latest sowing estimate last week, with total area sown at 3.8 million acres (+ 31% from last), however still down from the 5-year average of 4.3ma. Trade estimate that actual sown area is likely to be closer to 3.1ma. As the survey was conducted prior to serious and significant sowing delays and problems in eastern Canadian prairies. The actual figure even may be lower as oats are generally the last crop seeded, especially with much higher returns on offer for canola and wheat (with both crops at record planted acreage).

International oat futures and cash prices despite extremely tight fundamentals will continue to respond to outside macro factors. And like other grains traded on CME, oat futures are currently in a period of extremely high prices. After peaking at $233/t earlier this month, spot futures are currently sitting at US$ 363c/bu (A$ 200/t) This is an interesting price resistance level, with prices testing this but failing to go below this since October last year.

Back home, old crop milling oat prices have been languishing around $270/t FIS in WA (feed oats $20 discount) since the start of 2011, and recently feed oats have been trading at a premium to FED1. While currently in Victoria milling oats have been bid at $230 into the GV, whilst feed quality is a further $35 discount. Looking forward to new season prices CBH has got feed oats at $245, whilst the FED1 leg of the APW MG contract is at $205, making oats a very attractive option. Mind you the FED1 leg is historically very high at -$80/t.

The general feel international is a bullish tone is swirling around the oat pit with a high percentage that oat prices will rise further. The worlds biggest exporter Canada (and our main competitor into Asian destinations) have got with very tight domestic stocks after last years crop was the worst in nine years after wet weather played havoc across the prairies. This has also been exacerbated by the potential loss of sown acreage this year and the drop in oat prices relative to corn and other grains could begin to see increased demand for oats in feed rations.

US ethanol industry rolling with the punches.

You know the yanks are serious about their debit reduction program when they go after the all powerful and seemingly untouchable US farm lobby. Last week the US senate voted to end federal subsidies for ethanol, the combined tax breaks cost taxpayers about $6 billion a year.

The amendment will immediately remove a 45c per gallon tax credit on ethanol-gasoline blend and eliminate a 54c per gallon tariff on imported ethanol, (which comes largely from Brazil). The measure will now be added to a bill renewing a federal economic development program. The prospects for the overall bill are uncertain, but last weeks vote endangers the ethanol tax credit, which would expire at the end of the year anyway, unless Congress renews it.

The debate played out as the White house is looking at all options to reign in government spending (which borrows 40c to every dollar it spends), after the federal government hit the legal borrowing limit of $14.3 trillion.However in a sign that some ethanol subsidies are likely to endure, the Senate also voted to reject a measure that would have eliminated a government program that supports the distribution of ethanol.

Going back to 1985, when the US had a corn crop just shy of 209mmt, total corn use for ethanol was 6.9mmt or 3.3% of the total crop. Total corn production to ethanol then slowly rose until the mid 2000’s when it exploded. Last year with the third largest corn crop in history (316mmt), as much as 124mmt went into ethanol, amounting to an incredible 40% of total corn production.

It is easy to imagine what would happen to feed grain prices if even 100mmt of this was placed into the world export trade annually. Although the ethanol industry has to eventually stand on its own two feet, and ease the drip of government support. What would be more effective in eliminating price volatility (which is the real argument) would be a transparent look at government stocks and detailed reports on growing conditions so no future shocks take the market by surprise like last years ban on exports by Russia.

May & early June always the time for weather volatility and pricing opportunity

It is the time of year, where international grain futures jump at shadows and catch phenomena on a hit of a cold snap. The extreme weather that has been experienced over the last six months has caused volatility of a scale not seen since 2007/08.

Abnormally cold/wet weather continues in Canada prairies and northern US spring wheat states, highs around 10c and overnight frosts and summer has just commenced! Delayed plantings, cool temps slowing crop growth. Whilst some warmer temperatures in US corn belt are welcome encourage drying in the paddocks. May weather was way too wet in the Midwest; with many paddocks will have to be re-sown after paddocks dry out.

Europe crops finally getting good rain in France and Germany, however still waiting for soaking rains in UK. Cumulative rains received 15 – 31mm in drought stressed crop areas over the weekend. Temperatures have been hot, in the low 30’s for most of the past week. Seven day forecast calling for welcome cooling, but less rainfall in France; heat taking hold in Eastern Europe, Russia and Baltic countries

Forecast for heavy rain in Ukraine did not materialise last week; instead it was very dry. Recent intense heat made drought stress worse; frequent high temperatures in the mid 30’s have severely impact on wheat yields and winter rapeseed. Russian weather is relatively better; scattered showers occurred on the weekend in central Volga grain districts.

China spring weather has been wet with up-and-down temperatures in the key corn-soybean belt on Manchurian Plain; unsettled conditions will continue for a few more days. The Yangtze River valley drought is very severe; adversely key winter rapeseed growing area; May rainfall less than half of normal; same intense drought occurred February-April; anticipate oilseed shortages this season. The domestic soy crop would need to be gigantic to offset rapeseed loss. The government has just came out that the domestic wheat crop has increased from last season, having trouble believing this after record dry in key regions from October through to April.