“The global durum supply demand balance outlook is very consistent with recent price behaviors. Global production is forecasted down by -2.5 Mio tons versus MY 18/19 and only partially offset by higher carryover (mainly sitting in USA) for +0.9 Mio tons. This scenario is supportive for bigger trade volumes (+0.4 Mio tons), particularly due to Italy and Turkey import demand, as confirmed by the most updated official export and sales data from USA and Canada and the two purchase tenders issued by TMO during September. Being world durum consumption quite inelastic to prices, ending stocks are forecasted to decrease by 1.7 Mio tons and stock / use ratio to decrease at 22%, down from last MY 27%.”

Filippo Bertuzzi Senior Market Analyst Areté srl fbertuzzi@areteonline.net

LAST TWELVE MONTHS’ MARKET BACKGROUND The durum wheat prices trend reversal has been a fact since the beginning of 2019. While quotations steadily decreased during the whole 2017/2018 Marketing Year (MY) and most of the first half of 2018/2019 (MY, Jul-Jun) under the pressure of large world supply, since November 2018 market fundamentals have started defining a new scenario.

As a matter of fact, historical low prices and little or even negative profitability against other crops - particularly soft wheat – have pushed farmers to plant less durum in all major production areas, either export and import countries. Looking at the 2019 crop planting timeline, EU came first (Oct-Nov 2018) reporting durum area at -6% comparing with previous year, with basically all major producing countries planting less durum, particularly France. During the first quarter of 2019, the very first forecasts and the sentiment of major market players assumed potential strong acreage decrease in USA and Canada as well, later confirmed by official planting intentions reports issued by USDA in March (-31%) and Statistics Canada in April (-21%). Quotations in Italy and, in general in EU, found support in the above confirmations and increased steadily through the whole quarter.

After the first stage of prices increase, the market entered in a short “wait and see” period but soon planting delays in North America in May, early production estimate in EU in June suggesting a total output down from 2018 by a range of 0.7 - 0.8 Mio tons (-8% to -9%) and unfavorable crop conditions in Turkey pushed the Mediterranean importers back to the market to take the opportunity of abundant and available good quality stocks (CWAD1), add coverage and mitigate the risk of further price increase. Particularly, the Italian importers turned up again on the Canadian market after a long period of low demand started at the beginning of 2018. Turkey purchases included, besides Canadian origin, Mexican durum which production harvested in May – June was slightly higher than in 2018. In this context, Canada strongly increased its sales and shipments through the period April - July so that Jul 31st stocks closed at 1.6 Mio tons and carryover to MY 2019/2020 accounted well below the values expected by the market just three months before. As a very first consequence, bids at farm level started improving in Canada as well.

For MY 2019/2020, North African countries turned out being quite neutral to the market. Algeria production has still stayed close to record values, following last year and 2017 abundant harvests and Tunisia output was also on the high side of its historical. Only Morocco reported a sizable production decrease by -45% comparing to 2018 which, in any case, was mostly offset by the huge carryover. As a matter of fact, the supply demand data suggest that the area may show up in the market to buy again only in early 2020 when planting is completed, same as it happened during MY 2018/2019,

MOST RECENT DEVELOPMENTS With the whole market looking since the beginning of September at the harvest developments in Canada and USA, the current outlook does not seem to provide signals of price trend reversal. On the opposite, the significant delays reported from both areas, have been raising during last weeks more worries and uncertainty with regard to final production output for both, quantity and quality. At September 16th official data reported Saskatchewan durum harvest completed at 48% comparing with last year 82%. In USA, harvest progress was 51% in North Dakota and 73% Montana, still behind in both states comparing with 74% and 97% in 2018, at same date. Also, data for all the above mentioned areas are behind pace comparing with their historical five years’ average. As of today, the current outlook in North America provides actual risks to the acres that farmers will be finally able to harvest, the share of grades n.1 and n.2 among total production and, as a consequence, to prices level and - eventually - quality premiums. Same as for the major players, the outlook is not positive in other durum areas as well such as Kazakhstan where, on top of a 10% decrease for durum planted area in June, rainy weather at harvest (almost completed at the time of this article) affected the quality of a large share of the crop, and Australia where the third dry year in a raw is assumed to negatively impact the yields for the incoming harvest (Nov-Dec), particularly in key area like Northern New South Wales and Southern Queensland.

DURUM WORLD SUPPLY - DEMAND BALANCE ARETÉ FORECAST As a whole, the global durum supply demand balance outlook (Areté forecast) is very consistent with recent price behaviors. Global production is forecasted down by -2.5 Mio tons versus MY 18/19 and only partially offset by higher carryover (mainly sitting in USA) for +0.9 Mio tons. This scenario is supportive for bigger trade volumes (+0.4 Mio tons), particularly due to Italy and Turkey import demand, as confirmed by the most updated official export and sales data from USA and Canada and the two purchase tenders issued by TMO during September. Being world durum consumption quite inelastic to prices, ending stocks are forecasted to decrease by 1.7 Mio tons and stock / use ratio to decrease at 22%, down from last MY 27%.

As above mentioned, next major factors to monitor in the short term to fine tune the global balance and understand further market developments will be the final outcomes of Canadian and USA harvest. Afterwards, the second half of MY 2019/2020 will be defined also by the choices of EU farmers for the incoming planting season which, despite the relevant price improvement already occurred, do not look promising for durum wheat, according to current market rumors and preliminary surveys with producers.

EU has been going through its Glyphosate approval renewal process, which deadline is set for December 2022. Due to strong public opinion focus on it, the subject has already proven having the potential to be a game changer for the durum market as it has happened in 2018 and part of 2019 when Canadian trade suffered the consumers’ opposition to the herbicide usage, particularly in Italy - one of Canadian main export destinations – and durum world trade patterns have changed and have adapted accordingly. The debate is still ongoing and the EU Commission decisions will be crucial in the mid and long term scenarios, as well as any possible action implemented by single member states, such as specific restrictions for Glyphosate utilization.

Besides debate about Glyphosate usage, durum wheat origin for pasta production has also been a more and more relevant driver of EU industry sourcing choices. Again, the regulatory framework and the incoming developments at EU level are pivotal to understand and assess risks and opportunities for exporters and traders. The new EU Regulation for raw materials’ origin labelling will be effective starting from April 2020 and - particularly for Italy – the interaction with existing regulations will be a substantial variable to define the future scenario. On the consumer’s side, it is notable the growth of demand for pasta made by domestic durum wheat during last years, starting from Italy, but also with some French and Spanish pasta processors recently following the trend. Moreover, Government policies implemented to support the local durum farming through funding programs have enrolled increasing hectares since 2017, same as farmers’ application to planting contracts.

World durum production trends and trade flows will likely be influenced by all or some of the above listed variables and the actors in the supply chain may benefit a careful watch over of further developments of ongoing processes.