SUMMARY

LAST 12 MONTHS

Durum markets have seen impressive prices and demand over the season, with a wild 12 months of weather, production swings, export anomalies and quality issues.

We started this season with a continuing tight stocks scenario, which has been present in Durum markets for the last 2 years, especially on higher quality durum stocks. Durum prices peaked over the October 2022 to January 2023 period, with some very high trades recorded. Noting that this was in a more general high price environment vs today.

The main factors contributing to the tight Durum markets and associated higher prices are as follows;

∙ Repeated Canadian droughts, with two limited production years in last three seasons
∙ Continued drought in North Africa, where cuts to local production due to rainfall and irrigation availability has seen elevated import demand
∙ Weather issues effecting quality in Italy, after significant rainfall and flooding was experienced at harvest time last year

Essentially we have started with tight carry over stocks for the last two seasons and have continued to see very strong demand, even in the face of high prices, both outright and relative to standard wheat grades.

Over the course of the year, we have seen significant price swings and some outside of normal activity.

If we rewind 12 months, our starting point on price for the season was very high. With some trades reflecting values over USD $400/mt FOB.
Come March / April, we saw price step back rapidly, with the “demand” narrative turning poor and competition from the Mexican harvest and export pressure seeing values drop significantly into Q2 of 2023 Moving into the middle of the season we saw significant stocks become available for export from Russia, Kazakhstan and most importantly Turkey.

The Russian, Kazakh and Turkish export output was driven by good production in the region and a very good production year in Turkey, where government reports estimate the highest yield in 18 years and a total production of 4.3 mmt. This figure represents an impressive 15 % year on year growth and an amazing 35% growth over 2 years, with the 2021 Turkish crop drought effected. Early imports, combined with the surprisingly high yielding local crop and high prices saw Turkey flush with Durum and threatening exports, which were eventually allowed by the government A rapid devaluation of the Turkish Lira then triggered a significant export program that forced values lower for months, with the markets shocked at the size of the export program, from an unusual exporter.

Recent USDA estimates put Turkish exports at 1.35 mmt for June to Nov 2023, which is a serious amount of Durum and puts Turkey into the handful of large Durum exporters for the season.

In October and November 23, we saw both Turkish and Russian governments stop export activity, prompting a price recovery as North African demand came in to cover Q1 2024 shipments. This offered Flexi Grain a good opportunity to make an early new crop sale, prior to Mexican durum harvest pressure and the possible re entry of Turkey as an exporter in Q1 and Q2, as was rumored to be possible in the market.

Since this time, we have seen Turkey re tender for further exports twice, with One successful tender in January and the more recent tender canceled with no sales due to too low prices being offered – This is an important note, with Turkey having been the low end price setter in the market over the last 12 months. We also see Mexican offers begin to flow – with prices pressured further by lower corn prices into Mexico, which replaces Durum on price as a local feed source. From November to March, we suggest Durum markets are around USD $50/mt lower, but with limited trades to report recently.

The significant sell off in Milling wheat / other grains has also been relevant to Durum prices in this sell off and I think we are adding acres / acres intentions in many production countries – Including Canada, Turkey and Australia.

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LOOKING FORWARD

WEATHER & PRODUCTION

MAJOR PRODUCERS

CANADA

The largest exporter globally by a mile. The state of the Canadian crop has a significant bearing on Durum values and market dynamics. The crop should be an improver year on year, barring poor growing season conditions.

Snow is currently melting as we approach planting window for Spring wheat, moisture looks fine, per the below maps – Although some commentators argue that Canada is still dryer than average, after multiple drier years and some lower snow cover in some areas.

December acres intentions reports indicate record Durum acres, with Canadian farmers planning to increase crop area by 5.1% or approximately 300,000 acres. This is generally at the expense of Milling wheat (Spring) and Rapeseed crops, the latter of which is sharply down and will account for around 300,000 of production assuming average yield.

Also worthy of mention are the extremely low carry stocks of Durum, which are some 700,000 mt lower than the 5-year average. This drawdown has been a result of successive lower production in Canada owing to weather and strong demand despite high prices.

MEXICO

Generally less wheat planted and dry conditions in the lead up to planting have seen wheat expectations lower year on year.

Soil moisture maps do point to some issues, as does NDVI.

Cheaper corn imports may make Durum more available for export due to feeding substitution regardless of production. Not a simple analysis.

We will see the Mexican sellers come out in the April-May period and this will be a good measure on how things are looking from a crop and Corn substitution perspective.

EU – IMPORTANT PRODUCER / CONSUMER

France had a wet planting season, which delayed sowing and caused poor early conditions. Durum crops are 72% good/excellent conditions vs 92 % last year, with similar issues in other Winter crops and serious delays in Spring cropping programs. Some late acres were also missed due to said delays, which are not considered in official crop numbers at this stage. The weather situation has not been improving over the last few weeks, with continued above-average falls.

Spain continued to suffer from some dry conditions into late 2023, albeit probably better than last season. Conditions have been improving recently, with good rains seen consistently.

Italy saw very dry conditions through planting and into late 2023. Sicily was particularly bad, as were many important Durum areas. The situation has been improving, but there are some areas that are well behind vs normal moisture accumulation and likely the crop remains moisture limited.
Italian stocks are high due to massive imports of low quality durum from

Turkish, Russian etc origins. Italian millers may sit on these stocks to blend with new crop of high quality if the dryness continues.

NORTH AFRICA

North African production areas have remained dry generally, although some areas of Algeria and Tunisia are improved year on year. Morocco is worse, which leaves a potentially unchanged situation.

The continuing drought has seen strong demand from Algeria especially, where Australia has shipped the majority of our exports to in the last 2 seasons.

Still time to improve these crops, or the opposite – with harvest in May June.

TURKEY

Production in Turkey will be under increased scrutiny after the big yield surprise last season.

By all reports, we see similar to improved acres and by the maps, NDVI looks good, maybe better than last year. Certainly, there has been far more in crop rain this season vs last. The Spring finish will be the determiner here, as it was last season.

AUSTRALIA

Increased acres in Southern NSW are on the cards, owing to priced-based rotation changes out of Soft wheat and into Durum.

Northern production will likely also be improved, pending rain for the more marginal areas.

Currently on weather, we are sitting a little dry for the higher percentage of dryland Northern areas. Southern water availability is good and priced accordingly.

Cotton crops should be off on time with the heat now, so planting should be timely.

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