Strong Durum, HRS Sales Push Past Price

By USW Market Analyst Casey Chumrau

Strong demand supported prices for hard red spring (HRS) and durum export sales for the first month of the 2014/15 marketing year. Both classes are greatly outpacing last year’s sales at this time despite increased export prices.

Export sales of durum, generally the most expensive U.S. wheat class, have fluctuated greatly in recent years. In 2013/14, sales were limited by high prices relative to Canada and significant logistics issues in the northern U.S. plains. But, the U.S. railroad situation improved with the spring weather just as serious concerns arose about the Italian durum crop quality. Low yields and substantial rain just before harvest in Italy resulted in a demand spike for U.S. durum and export prices responded with a $30 per metric ton (MT) jump between the beginning of June and July.

Despite the higher price, durum sales as of June 29 are 65 percent ahead of last year at 190,900 metric tons (MT). Sales are still 13 percent below the five-year average on this date, but prospects look favorable for sales to continue as Canada’s logistical issues persist.

Canada’s logistical problems are also providing additional opportunities for HRS sales, with recent strong nearby demand for high-protein spring wheat. In a normal year, buyers might meet demand with a combination of Canadian and U.S. wheat. With Canada unable to meet new nearby business, U.S. wheat sales have increased. HRS sales surged 62 percent higher than both the prior year’s pace and the five-year average to date. As of June 29, the United States had sold 2.78 MMT of HRS, the most by that date in more than 10 years.

The spike in HRS sales comes despite steady prices defying the recent downward price trend for grains in general. The Minneapolis Grain Exchange (MGEX) HRS September futures contract lost 6 percent of its value between June 6 and July 3, but higher basis levels mostly offset the decline. The strong demand and dwindling old-crop supply means supplies have to go farther inland to source wheat from farmers, adding transportation costs to the export price. In that same June 6 to July 3 time period, HRS FOB from the U.S. Gulf added 1 percent to its value from $329 to $332 per MT and FOB from the PNW is down just 2 percent from $320 to $313 per MT.

While price is just one of the many factors that determine value, the strong early sales pace of HRS and durum prove once again that the United States is able to meet regular demand and fulfill any needs left unmet by other exporters. Furthermore, for those buyers who need high quality wheat, the United States remains their premier choice.

Source : uswheat.org