U.S. Plantings: Durum Is a Bright Spot for Canada
The government’s initial survey-based forecast for U.S. spring crop plantings was issued this week. U.S. corn acres are forecast to be 97 million in total — the highest acreage total since 2012. Soybean acres were forecast at 83.5 million, up significantly from last year’s 76.1 million when weather crippled field work. U.S. durum area was forecast at 1.3 million while other spring wheat was projected at 12.6 million.
Durum is a bright spot...
Both Canada and the U.S. have had strong export programs this year, setting the stage for tightening stocks into 2020. With the outlook for U.S. acreage coming in below expectations, this keeps the odds of having a stocks increase in the U.S. low for the upcoming crop year. In fact, FBN expects another stocks reduction for the U.S. to the tightest levels since 2007/08. Adding in Canada does not really alter that view. FBN has a placeholder for planted area in Canada at around 5.6 million acres. Assuming the export pace slows from this year, Canada’s ending stocks are expected to be up only marginally from 2019/20. That keeps the combined stocks total at its lowest level since 2007/08.
...but spring wheat doesn’t offer many pricing opportunities
U.S. other spring wheat area was forecast at 12.6 million acres, down only marginally from last year. That total includes white spring wheat, which FBN assumes to be around 600,000 acres. Year-over-year changes are presented below. The fact that total spring wheat acreage is not higher in the U.S. is a positive for Canada. But, the U.S. has ample HRS stocks heading into planting. And, Canada’s export program is a disappointment versus last year. Those elements will keep futures under pressure absent a production problem.
How can we be slightly bullish durum and neutral spring wheat?
To help answer this, FBN looked at average durum cash prices in various months and compared those with average nearby Minneapolis futures for the same month. In essence, while there are certain months when pricing relationships are apparent, the relationships are not always clear nor meaningful, and they can change throughout the crop year. For instance, in August, there is a positive relationship between nearby Minneapolis futures and durum cash prices. But in November, that relationship changes and becomes looser — in other words, durum prices can break away from the relationship to Minneapolis futures.
What this means for the Canadian farmer
FBN maintains a neutral outlook for Minneapolis new-crop (September futures) and is slightly bullish for durum prices. The durum balance sheet is positioned to again tighten. That is expected to keep strength in that market during the marketing year. While durum prices could come under pressure during the year, FBN overall views that market as one that will have pricing opportunities in 2020/21.
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