Durum producers, traders, flour millers and consumers around the world have run out of adjectives to describe their market of late, as dwindling supplies, strong demand and a bull market in all commodities have sent durum prices into the stratosphere.
Although the market has been edging higher for two years, the acceleration in the past six months has been unprecedented, with prices rising to record highs nearly every week. As of mid-February, U.S. cash durum prices were approaching $800 a tonne, a 216% increase since August 2007.
A supply crunch is the primary fundamental factor behind the situation. Total supplies for the world’s three major exporters, Canada, the European Union (E.U.) and the United States (U.S.), have eroded over the past two seasons to the lowest aggregate availability since 1995-96, according to the International Grains Council (IGC). Availabilities in other key countries, such as Australia, Turkey and Syria, also have been limited this season.
The Council estimates total 2007-08 durum availability for the three exporters at 19.3 million tonnes. That figure marks a 10.6% drop from the previous season and a 22.8% decline from 2005-06.
In the E.U., excessive rains cut yields and quality, resulting in a smaller 2007-08 crop compared with the 2006-07 harvest. Canada and the U.S. saw their combined 2007-08 harvests grow by about 3% from the previous season, but below average carry-in stocks meant total supplies were actually down from 2006-07. For example, total durum supply in Canada is estimated to be some 26% below last year’s level and the smallest in 20 years.
The markets received confirmation of the deteriorating stocks situation in December inventory reports. In Canada, total durum stocks as of Dec. 31, 2007 were 2.9 million tonnes, 29.5% lower than a year earlier and well below Canada’s five-year average for the date of 4.6 million tonnes.
In the U.S., durum stocks as of Dec. 1 stood at 1.07 million tonnes, down 24% from a year earlier. At the same time, U.S. data indicated durum disappearance from September through November was 849,000 tonnes, up 167% from the same period a year earlier.
Many buyers in the 2007 fourth quarter were scrambling hard to buy durum in the face of tighter supplies. In that three-month period alone, durum prices advanced 125%.
So far in 2008, some countries have begun to minimize imports. In fact, tightening supplies and extraordinarily high prices have prompted the IGC to cut its 2007-08 world trade estimate to 5.9 million tonnes, the lowest since 1995-96.
Nonetheless, other buyers, such as the E.U., Morocco — which had a particularly poor crop — and Tunisia, have continued to purchase despite high import costs. That activity has spurred the market higher still.
Meanwhile, millers and pasta makers have been pushed to their limits this season. Extreme durum prices have driven up the cost of semolina to a mind-boggling $1,000 a tonne or so, prompting users to substitute high-protein spring or hard red winter wheat where feasible in their product formulations.
In some cases, pasta makers are throwing in the towel. A recent news article said several manufacturers in the U.K. and Italy had ceased production entirely because they were unable to raise consumer prices enough to cover their costs.
The market is still several months away from relief, as the U.S. desert durum harvest will begin in June. That planted area is estimated to be up by 70%, and some domestic and international buyers already have contracted for supplies.
Total U.S. durum area is expected to increase by at least 20%. But given competition for area from spring wheat, maize and soybeans, which also are at record-high prices, only time will tell what producers plant.