Supply and Demand for Durum

Wheat: Current and Future

Pressures

Dept of Agribusiness & Applied Economics

North Dakota State University

Fargo, USA

TO: World Pasta Day International Pasta Organization

Mexico City, Mexico Oct 25, 2012

By Dr. William W. Wilson University Distinguished Professor

William.Wilson@ndsu.edu 701 231 7472

Topics

Review of Supply in Durum

Major Pressures Impacting Durum

◦ Apparent shifts in demand for stocks

◦ Productivity trends

◦ N. American dual market

◦ GM crop development

Implications for durum buyers

2

EU Durum Supply and Demand

3

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MM

T

Production

Imports

Dom Use

Exports

End Stocks

Canada Durum Supply and Demand

4

0

1

2

3

4

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MM

T

Production

Imports

Dom Use

Exports

End Stocks

US Durum Supply and Demand

5

0

0.5

1

1.5

2

2.5

3

3.5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MM

T

Production

Imports

Dom Use

Exports

End Stocks

Canada/EU/US Durum Supply and Demand

6

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

MM

T

Production

Imports

Dom Use

Exports

End Stocks

North Dakota Planted Acres by Crop

0

2000

4000

6000

8000

10000

12000P

lan

ted

Acre

s (0

00)

HRS

Durum

Corn

Soybeans

Canola

Battle for acres—on-going

Mbly, HRS and durum declining in acres

Increases in GM crops: soybeans, corn, canola

7

Canada Planted Acres by Crop—deja-vue!

0

5000

10000

15000

20000

25000

30000

35000

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Pla

nte

d A

cre

s (

000)

Wheat

Durum

Corn

Soybeans

Canola

Declines in wheat, durum

Increases in Canola, soybean

8

Longer Term Prices

Durum Cash Prices Durum Spread to MGEX Futures

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

500

1000

1500

2000

2500

3000

Cents

/bu

Figure 1.1 Mpls. No. 1 Cash Milling Durum Prices

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

-500

0

500

1000

1500

Spre

ad N

o. 1 H

AD

-HR

S F

ut (c

ents

/bu)

Figure 1.2 Spread Mpls No. 1 Cash Milling Durum- HRS Wheat Futures Prices

Mpls No. 1 Durum Prices

10

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

0

500

1000

1500

2000

2500

3000

Ce

nt

s/

bu

Figure 1.1a Mpls. No. 1 Cash Milling Durum Prices

MGEX Squeeze

Record Low

US and NA SU/Ratio

Canada Quality Shortage 2010

US Prevented Planting 2011

Spread U.S. HAD-Avg MGEX Futures [Based on North American Stocks/Use Ratio and Production 1+2]

Conventional relationship used in most commodity analysis

Outliers in 2007-2008, 2011—extreme sensitivity when stocks are low, to threats to supply

2012 suggests a spread of about 140c/b over MGEX Futures (950)=1090c/b

◦ Current market is somewhat less suggesting durum is favorably priced

11

Productivity Growth Rates

Relevance: Durum losing acres to competing crops, in part due to

Greater productivity growth in competing crops (1.2% in wheat, 1.8% in GM row crops)

Durum is more risky: Price, quality, and quantity, in addition to severity of ‘post-harvest discounts’ More ready risk reduction mechanisms for competing

crops

Results: % Change per year ◦ CWAD 0.3%

◦ HAD 0.0%

◦ CWRS 0.8%

◦ HRS 1.1%

12

Saskatchewan Wheat Yield Trend

Yields are risky

No significance in

productivity for

CWRS or CWAD

13

15

20

25

30

35

40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Bu

/a Durum

CWRS

y = 0.2731x + 28.187

R2 = 0.154

15

20

25

30

35

40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Bu

/a CWRS

Linear (CWRS)

y = 0.1236x + 29.919

R2 = 0.035

15

20

25

30

35

40

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Bu

/a Durum

Linear (Durum)

North Dakota Wheat Yield Trend

14

15

20

25

30

35

40

45

50

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Bu

/a Durum

HRS

y = 0.3938x + 30.166

R2 = 0.2073

15

20

25

30

35

40

45

50

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Bu

/a HRS

Linear (HRS)

y = -0.001x + 29.903

R2 = 2E-06

15

20

25

30

35

40

45

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Bu

/a Durum

Linear (Durum)

Supply Curves in Durum: Planted Acres vs. Planting Time Spread

15

198419851986

198719881989

19901991

19921993

1994

19951996

1997

1998

19992000

200120022003

20042005

2006

2007

2008

2009

20102011

20122012

500 10001500200025003000350040004500

Acres (000)

-2

-1

0

1

2

3

4

5

6

Planting

Time Pric

e Spread

(Had-Hr

s) Actual

Pred

*NASS, ERS

Figure 3.15 Estimated ND & MT Durum Acres

19831984

1985 1986 19871988

198919901991

19921993

19941995

19961997

1998

1999

2000

2001 2002

20032004

20052006

2007

2008

2009

2010

2011 2007

2008

2009

2010

2011

25003000

35004000

45005000

55006000

65007000

7500

Acres (000)

-1

0

1

2

3

4

5

Sp

re

ad

(

CW

AD

F

in

al

-

C

WR

S

Fi

na

l)

$

C/

bu

Actual

Estimated

*Ag Canada, CWB

Figure 3.16 Estimated Canadian Durum Acres

Ratio of Durum to Spring Wheat Yields, (2006-2011)

Ratio Durum/Spring Wheat Yields

0

0 - 0.5

0.5 - 0.9

0.9 - 1

1 - 1.1

1.1 - 1.2

1.2 - 1.332

Relative yields indicate relative profitability, at equal prices

Results

◦ Most Canadian regions, and some ND, are about 1.0

◦ Some ND regions are< 1.0

Implications:

◦ At equal prices, greater propensity to grow durum in Canada, and, SW ND;

◦ Lesser propensity to plant durum in elsewhere ND

Concurrently: HRS vs. canola ◦ Canada would look to expand

canola more than in ND;

◦ ND would tend to produce more HRS

16

CV of Durum Wheat Yields (2006-2011)

CV Durum Wheat Yields

0 - 0.05

0.05 - 0.1

0.1 - 0.15

0.15 - 0.2

0.2 - 0.25

0.25 - 0.45

0.45 - 1.5

Risk: Major

concern to industry

Shifting acres to

regions with

greater risk in

durum yields

17

North Dakota Crop Budgets

18

Durum HRS Canola Corn Soybeans

Market Yield 37 38 1500 86 27

Market Price + LDP: 8.25 8.06 0.27 5.835 12.43

Market Revenue 305.25 306.28 405.00 501.81 335.61

DIRECT COSTS

-Seed 28 19.13 45.5 60.58 60.37

-Herbicides 22 22 18 15 15

-Fungicides 5.5 5.5 0 0 0

-Insecticides 0 0 0 0 0

-Fertilizer 62.63 64.92 80.29 78.34 8.75

-Crop Insurance 13.8 13 12.4 25.6 14

-Fuel & Lubrication 16.16 16.21 16.63 23.14 13.28

-Repairs 15.42 15.44 15.6 17.27 13.8

-Drying 0 0 0 17.2 0

-Miscellaneous 1.5 1.5 1.5 1.5 6.5

-Operating Interest 3.8 3.63 4.37 5.49 3.03

SUM OF LISTED DIRECT COSTS 168.81 161.33 194.29 244.12 134.73

INDIRECT (FIXED) COSTS

-Misc. Overhead 6.41 6.42 6.41 8.05 5.95

-Machinery Depreciation 17.2 17.23 17.82 24.95 16.06

-Machinery Investment 10.21 10.22 10.5 14.32 9.01

-Land Charge 46.2 46.2 46.2 46.2 46.2

SUM OF LISTED INDIRECT COSTS 80.02 80.07 80.93 93.52 77.22

SUM OF ALL LISTED COSTS 248.83 241.4 275.22 337.64 211.95

RETURN TO LABOR & MGMT 56.42 64.88 129.78 164.17 123.66

LISTED COSTS PER BUDGET UNIT (bu) : (bu) : (lb) : (bu) : (bu) :

-Direct Costs 4.56 4.25 0.13 2.84 4.99

-Indirect Costs 2.16 2.11 0.05 1.09 2.86

-Total Listed Costs 6.73 6.35 0.18 3.93 7.85

North American Dual Market

Major change in grain marketing, and,

durum in particular

19

20

Background: Imports of durum

Imports of durum about

◦ 500,000 mt/year

◦ No. 1 and 2’s

Comprise about 20% of use for domestic processing

Mostly No. 1s and 2s

21

Major Functions:

◦ Monopoly buyer/seller of milling wheat (and malting barley) from the Canadian Prairies

◦ Sales made direct, and/or through accredited exporters

◦ Operates pool pricing system

Including an initial price scheme

◦ Guarantees from the Gov of Canada

All borrowings for buying/selling grains

Borrowings for Initial prices to growers

Margin calls on futures hedging

◦ Accredited exporters (crucial) and country buyers

Ancillary Functions:

◦ Allocates rail cars to elevators

◦ Conducts tendering system for elevation services

◦ Sales made by CWB, assigns origination to individual elevators (firms)

◦ Committee member influencing:

Grain quality regulations

Variety Release

Export promotion through CIGI

◦ End-use certificates

CWB does not own assets, and hence, cannot borrow w/o Gov of Canada funding

22

Pre-Dual Market Changes

Growth in Canola: to now exceed wheat plantings

Changes that have occurred in recent years ◦ Rail

Elimination of the WGTA rail rates, and related subsidy mechanism;

Elimination of the provision in the rail rate regime that would discriminate against US grains;

Adoption of a system of regulated (revenue cap rates) and non-regulated rates for grain shipping;

◦ Grain marketing Elimination of kernel visual distinguishability in grain

marketing

Replacement with a declaration upon delivery.

Changes in CGC regulations to allow shipment of US grains in the Canadian grain marketing system;

23

Legislative Features Farmers can immediately forward contract wheat and barley

sales for execution on or after August 1, 2012;

◦ Grain companies, end users, and the CWB can offer of wheat and barley contracts to farmers for execution on or after August 1, 2012;

◦ Producers will be able to deliver wheat and barley to any domestic or export buyer and transportation will be arranged between buyers and sellers;

The CWB will continue to operate under a interim period

◦ Government will continue to provide CWB borrowing and initial payment guarantees;

◦ CWB will be able to buy wheat and barley as they choose, including pooling arrangements, in addition to the full range of other grains

◦ CWB will continue as an entity offering marketing options to farmers on a voluntary basis,

Ancillary: Retain provisions for producer rail cars, check-offs, research funding etc.., and special provisions for the Port of Churchill.

24

Key Elements Following Change

ICE Futures and related forward pricing mechanisms

More (new) competitors to serve customers directly! ◦ Glencore acquisition of Viterra

◦ JRI, Cargill, P&H, Patterson, etc.

◦ Other buyers/new entrants (e.g., CHS, others)

Alternative logistics to facilitate bilateral trade at lower costs

Marketing costs: ◦ Competitive pressures to reduce handling and

rail costs

25

Forward pricing and Transparency -

Provisions facilitated providing CWB advantage in forward pricing

◦ Credit provisions

◦ Monopoly seller

◦ Non-transparency

◦ Intra-year (not-inter-year)!

Advantage: Equivalent to GOC providing a long-put option

◦ Value: About 50c/b

Future:

◦ Some features that provided CWB an advantage, are eliminated

◦ Expect Prices for deferred shipment will increase to more accurately reflect risks of

selling in deferred positions

Major challenge for inter-crop year forward sales—need for contracting mechanisms

26

Rail and Rate comparison: Major Differences

Canada—2 rail rate regimes ◦ Regulated rates for exports (non-US) from Pr.

Provinces to/through Vcvr and Tbay Maximum rates, based on formula on a mileage basis, and

revised/updated annually.

Changed to allow US shipments under these rates

◦ Deregulated (similar to SRA) for Domestic and for shipments to US mills

Subj to FSC

US ◦ No distinction on domestic vs. exports

◦ Shuttle/DET incentive mechanisms

◦ Ancillary charges FSC

Car Values

27

28

Over time

Canada rates have increased

◦ Formula driven rates (rev cap)

◦ Exchange rate (Regulated rates are in

C$/mt)

◦ Non-regulated rates are greater

Export Rates Canada and US--Comparable Geographically

Located Stations to Duluth / Thunder Bay

Canada< US Rates.

Shipment: 47 & 50 car rates Shipment: Shuttle & 100 car rates

29

0

1000

2000

3000

4000

5000

6000

Vulca

n

She

lby

Swift C

urre

nt

Mac

on

Estev

an

Ber

thold

Killa

rney

Bot

tineau

Winnipe

g

Dra

yton

/Cryst

al

$U

S/c

ar

47/5

0

BNSF

Can

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Vulca

n

She

lby

Swift C

urre

nt

Mac

on

Estev

an

Ber

thold

Killar

ney

Bot

tinea

u

Winnipe

g

Dra

yton

/Cry

stal

$U

S/c

ar

Sh

utt

le/1

00

BNSF

Can

Domestic Rates Canada and US--Comparable Geographically

Located Stations to Chicago and beyond.

US < Canada

47 and 25 Car DET/50 Car

0

1000

2000

3000

4000

5000

6000

7000

Vulca

n

She

lby

Swift C

urrent

Mac

on

Estev

an

Berthold

Killarney

Bottin

eau

Winnipe

g

Dra

yton

/Crystal

$U

S/c

ar

47/2

5

BNSF

Can

0

1000

2000

3000

4000

5000

6000

7000

Vulca

n

She

lby

Swift C

urrent

Mac

on

Estev

an

Berthold

Killarne

y

Bottin

eau

Winnipe

g

Drayton

/Crystal

$U

S/c

ar D

ET

/50

BNSF

Can

30

GM Crops

Major game changer in agriculture,

impacting all crops!

31

U.S. Harvested Wheat Acres, 1980-2006, and

Projections for 2007-2016

30

35

40

45

50

55

60

65

70

75

80

mil

lio

n a

cre

s h

arv

es

ted

Actual

FAPRI Baseline

USDA Baseline

CARD Baseline

CARD High Oil Price

CARD Reduced CRP

OECD-FAO

Wilson Base

Wilson High Ethanol

Dept of Agribusiness & Applied

Economics, NDSU, Fargo - 58102

Genetic Modification in Grain Crops—

Game Changer

Changing geography on production and

displacing other crops, notably small

grains

Changing technology growth rates

Impacts ◦ First mover advantages to countries/regions/states targeted by

agbiotech firms---4-5 year advantage

◦ Greatest appreciation in land values those regions transforming from non-GM technology; to more GM

technology.

i.e., technology efficiency is partly capitalized into value of technology and value of land for which the technology is applied

33

Corn Planted 1995 Corn Planted 2011

Corn 1995

0 - 25000

25000 - 50000

50000 - 100000

100000 - 150000

150000 - 200000

200000 - 3600000

34

Corn 20110 - 2500025000 - 5000050000 - 100000100000 - 150000150000 - 200000200000 - 3700000

Soybean Planted Area 1995 Soybean Planted Area 2011

Soybeans 1995

0 - 20000

20000 - 50000

50000 - 100000

100000 - 200000

200000 - 300000

300000 - 525000

35

Soybeans 2011

0 - 20000

20000 - 50000

50000 - 100000

100000 - 200000

200000 - 300000300000 - 525000

HRS Area: Has retained area relative to rest of wheat sector due to demand

growth, competitive pressures and niche market characteristics— acres decline

from peak <20% (vs. rest of wheat which has declined 40%)

HRS Wheat Planted Area 1995 HRS Wheat Planted Area 2011

HRS 1995

0 - 10000

10000 - 25000

25000 - 50000

50000 - 100000

100000 - 200000

200000 - 405000

HRS 2011

0 - 10000

10000 - 25000

25000 - 50000

50000 - 100000

100000 - 200000200000 - 405000

Durum Area:

Durum Wheat Planted Area 1995 Durum Wheat Planted Area 2011

Durum 1995

0 - 12000

12001 - 45100

45101 - 130000

130001 - 225000

225001 - 325000

Durum 2011

0 - 12000

12001 - 45100

45101 - 130000

130001 - 225000

225001 - 325000

Durum Area:

Durum Wheat Planted Area 1995 Durum Wheat Planted Area 2011

Durum 1995

0 - 12000

12001 - 45100

45101 - 130000

130001 - 225000

225001 - 325000

Durum 2011

0 - 12000

12001 - 45100

45101 - 130000

130001 - 225000

225001 - 325000

Crop Improvement Technology:

GM Tech and “Seeds and Traits” Competing crop technologies have embraced

◦ Marker-Assisted Breeding

◦ GM technology

Emergence of “Seeds and Traits” as business

Seeds & Traits Platform: combining novel genetic traits with elite germplasm to develop crops that thrive while expressing the desired trait.

Discovering novel genes.

Transforming them into the cells of plants.

Optimizing the expression of the genetic trait in plants in the correct plant tissues, at the appropriate time and in sufficient levels.

Incorporating, through breeding, the genetic trait into commercially viable varieties or hybrids.

Business strategy e.g., From Dow

◦ Introduction of genetic traits via biotechnology does not reduce the importance of superior germplasm in the host plant, nor does it replace the need for plant science and plant breeding.

Fundamental Paradigm Shift on Technology Distribution

Dept of Agribusiness & Applied

Economics, NDSU, Fargo - 58102

Research Expenditures: Seeds and Traits

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

0

100

200

300

400

500

600

700

800

900

Exp

en

ditu

res (

$ M

il)

Bayer

Dow

Dupont

Monsanto

Syngenta

Monsanto Is leading investment in R&D on Seeds and Traits.

Others increased spending on seeds and traits but did not do so until about the early 2000s.

By 2006 each of the agbiotechnology companies has further accelerated their spending on seeds and traits.

Monsanto has a lead on its rivals by about 5-6 years.

New GM Traits and Competition

Results of these expenditures in

research is for

◦ Emergence of new GM traits

◦ An escalation in yield growth rates

Dept of Agribusiness & Applied

Economics, NDSU, Fargo - 58102

Nitrogen

Utilization

(Monsanto/BASF)

Agronomic Trait

Quality Trait

Industry Corn Portfolio* A Steady Pipeline of Events

*Estimated commercialization pipeline of corn biotech events prepared by the U.S. Grains Council

Commercialization dependent on many factors, including successful conclusion of regulatory process

Drought

Tolerance

(Monsanto/

BASF) Higher

Yield

(Monsanto/

BASF)

Broad Lep

- MIR 162

(Syngenta)

Corn

Amylase

(Syngenta)

Increased

Ethanol

(Syngenta)

RW dual

Mode of

action

(Syngenta) Novel

Insect

Traits

(Syngenta)

“Optimum”

Herb. Tol.

(Pioneer/

DuPont)

Triple-mode

Herb. Tol.

(Pioneer/

DuPont)

Drought

Tolerance

(Pioneer/

DuPont)

Increased

Yield

(Pioneer/

DuPont) “SmartStax

(Monsanto/Dow)

Herbicide

Tol.

(Dow)

Improved

Feed

(BASF)

Improved Feed

(Pioneer/DuPont)

VT Triple Pro

(Monsanto)

2009 2010 201X

Nitrogen

Utilization

(Pioneer/DuPont)

Nitrogen

Utilization

(Syngenta)

Increased

Ethanol

(Pioneer/DuPont)

Drought

Tolerance

(Syngenta)

Bt/RR2Y

(Monsan

to) Low Sat

(Monsanto)

Omega-3

(Monsanto

;

Steandon

ic Acid)

High

Stearate

(Monsa

nto; Pioneer/DuPont

)

High Beta-

Conglycinin

(Monsanto

;

Pioneer/

DuPont)

Industry Soybean Portfolio* A Steady Pipeline of New Biotech Events Nearly Every Year

Processing:

High Oil Soy

(Monsanto)

High Oleic (Pioneer/DuPont)

Liberty Link

(Bayer)

Agronomic Quality/Food

RR2Y Monsanto

201X 2009

Modified 7S

Protein FF (Pioneer/DuPont)

High Oleic, Stearate

(Pioneer/DuPo

nt)

Glyphosate &

isoxazole tol.

(Bayer)*

Low-

Phytate Pioneer/DuPont

Dicamba Tolerant

(Monsanto)

Omega-3 (EPA/DHA) Pioneer/DuPont

Feed: High Protein

Soybean

(Monsanto;

Pioneer/DuPo

nt)

Yield

(Monsanto;

Pioneer/DuPont)

Rust

(Monsanto; Pioneer/DuPont

Antibody -

containing

(against E.

coli

0157:H)

Herbicide tol.: 2,4-D

(Dow) and

aryloxyphenoxy

propionate

herbicides

Disease

(Monsan

to;

Pioneer/DuPont) Soybean Cyst

Nematode

Monsanto; Pioneer/DuPont

GAT/Glyphosate-ALS

(Pioneer/DuPo

nt)

*Estimated commercialization pipeline of soybean biotech events prepared by the American Soybean Association,

November 2007. Updated March 2009.

HPPD

Tolerant (Syngenta)

Nematode

Resistance (Syngenta)

Disease

Resistance

(Syngenta)

44 44

Double-X to

single-X hybrids

Expansion of irrigated area,

increased N fertilizer rates

Soil testing, balanced NPK

fertilization, conservation

tillage

Transgenic (Bt)

insect resistance

Reduced N fertilizer

& irrigation?

(embodies tremendous technological innovation)

Yield Trends in Corn: USDA View

y = 112.4 kg/ha-yr

[1.79 bu/ac-yr]

R 2 = 0.80

2000

4000

6000

8000

10000

12000

1965 1970 1975 1980 1985 1990 1995 2000 2005

YEAR

GR

AIN

YIE

LD

(kg

ha-1

)

Integrated pest

management

K.G. Cassman, CAST Renewable Energy Agriculture, In Press.

?

Corn trait efficiency: Drought

Resistance

◦ Potentially improve yields by 8-22% (15% average) under drought stress that reduces yields by 50%

◦ Monsanto (2008) indicated yield improvements of 6-10%

in water stressed environments.

Testing of first and second generation DT corn varieties ranges from 7 to 13% for first generation tests

9-15% for second generation

9-10% yield advantages were reported in low drought seasons and 15% in a high drought.

◦ Syngenta: 15% less yield loss during dry

years.

45

NUE Corn

5 companies working on NUE

5-10 years out

2 technologies

◦ GM

◦ MAS (does not need dereg)

Trait efficiency

◦ Produce same yield with 30% less fertilizer

Or,

◦ Produce greater yield w/same fertilizer

Value: $700 million (US), $1.5 bill. worldwide

46

Projected Yields:

Double by 2030 Monsanto

released the following figure to illustrate the change in prospective growth rates.

These translate to growth rates in the area of 3.2 to 3.4% per year.

Other companies have released similar goals

Company Acquisitions or Partners (Year, Country) GM trait targets1

Athenix (2009, US) Drought

CSIRO (2009, AU) NUE

Evogene (2010, IL) Yield

NARDI (2011, RO)

RAGT (2011, FR)

SORT, EUROSORT (2010, UA)

South Dakota State University (2011, US)

Texas A&M (2011, US)

University of Nebraska-Lincoln (2010, US)

HRZ Wheat (2011, US)

Northwest Plant Breeding (2011, US)

Arcadia (2010, US)—they own a small share Disease

Acquired Trident seed..

Biogemma (FR) Drought

U of idaho

CSIRO (2006. AU) Quality

BASF (2010, US)

Drought—stress (incl of

drought

Intergrain (2010, AU) Herbicide tolerance

Kansas State University (2010, US) Yield

Westbred (2009, US)

Virginia Tech (2010, US)

NDSU (2012)

CIMMYT (2010, MX) hybrid…

Wheat Technology Landscape

Most of the traits

are complex in

nature

Wheat Yield Under Alternative Technology Assumptions

Wheat technology

◦ Marker assisted selection +1-2%/yr

◦ GM technology +20%

Australia GM lines had yield 20 percent higher than conventional wheat varieties under conditions of drought stress

Value of DR Wheat in N. America ◦ About $350 million

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

35

40

45

50

55

Bu/a NDConv

Private 1 GM/Mrk

MASMAS

GM

49

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

20 25 30 35 40 45 50 55

Cu

mu

lati

ve P

rob

ab

ilit

y

Yield (bu/a)

CT

DT = .20

DT = .25

GM Wheat Issues/Impacts Issues

◦ Massive acceleration of funding for research

◦ Partnerships being created with Public Universities for Germplasm

◦ Numerous common traits (DR, NUE, Yield) will force immense competition regarding trait efficiency, consolidation and expanding into other traits (quality, consumer)

◦ 10 years out--2022 Other crops will have up to 20 more traits commercialized during this period.

Impacts

◦ Reduce cost of wheat production by $10-20/acre Tendency for yield risk to be reduced under GM

◦ Increase in competitiveness relative to other GM crops (corn and soybeans)

◦ Increased attention to other traits in wheat

◦ Concentrated in N. America, and Australia

50

Status of GM Traits and Durum

Biotechnology in Durum: Issues

◦ Acres—small acres inhibits novel R&D

◦ Food use and export market: acceptance more important than other crops, and wheat

◦ Requirement of potential separate deregulation package ($30m), vs. durum being bundled in all wheat for de-regulation!

Biotechnology in Durum: Status/Outlook

◦ >1 biotech companies have indicated interest in exploring durum (not affirmed)

◦ >1 has indicated interest in developing non-biotech traits for durum

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Summary I: Supply/demand

2012 Adequate supplies and durum is favorably priced

Escalation in prices due to fundamentals of other crops, impacting durum ◦ Overall growth in, China soybeans, ethanol demands,

droughts (more frequent abnormal crop years), etc.

Looking forward, major changes include ◦ Industry needing to operate with lesser national

stocks

◦ Durum yields are lagging others

◦ Shift in durum plantings to more risky regions

◦ Industry needing to operate with lesser national stocks

◦ Greater risk in price levels and differentials

52

Summary II: Liberalization in

Canada Marketing Massive changes w/in N. America

◦ But, a continuum toward greater decentralization of marketing world-wide

◦ Fewer remaining STEs

Protections afforded by CWB will be lessened substantially

◦ Deferred pricing (intra-year)

◦ Credit

◦ Quality over-runs

Stock-holding

◦ CWB tended to carry greater inter-year stocks

◦ Shift to industry to carry more stocks

Forward pricing/contract

◦ Pressures will emerge for more commercially acceptable ‘pre-planting’ contracts (in both countries)

◦ Premiums/discounts w/in Canada will provide greater market incentives w.r.t. quality, timing, etc.

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Summary III: GM Crops

Game changer impacting all of agriculture ◦ Change geography of production

◦ Change opportunity cost of producing crops

Impacts on wheat ◦ Lost acres to corn, soybean and canola

◦ Shift more wheat to Black Sea and other regions

GM in Wheat ◦ At least 10 years out

◦ Reduced costs of production

◦ Impacts on durum, highly uncertain

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Implications for Buyers Near Term

◦ Durum values for 2012…favorably priced with sufficient supplies

◦ 2013

Longer-term

◦ Lower stocks…

◦ Durum prices increase to competing crops to induce plantings…

Strategic Implications

◦ Fewer stocks….more volatility (risk)

◦ Competing crops are eroding durum production in traditional regions

◦ More contracting (pre-planting)…reduce impacts of post-harvest price adjustments…risks.

◦ Stock-holding will become more important.

◦ Demands for more healthful-traits for all wheat products…durum has role to play….thought this is yet to be defined

55

Thank you….. Q&A

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