U.S. & World Durum 2018 Review / 2019 Outlook

1. U.S. & World Durum2018 Review / 2019 Outlook Jim Peterson Policy and Marketing Director ND Wheat Commission

2. World Durum 2018 • Generally tranquil market situation • Durum at price discount to bread wheat classes • Lower demand big variable, production up marginally from 2017 • North Africa had a very large crop…increasing trend leading to lower world trade • Smaller EU crop last two years…some pockets of quality shortfalls in 2018 but generally lower imports last few years • Canadian and U.S. crops both higher in production, with good quality • Emergence of KZ as exporter and loss of Venezuela as quality importer have had an impact on world durum trade

3. WORLD DURUM PRODUCTIONMillion Bushels Source: Int’l Grains Council 3/19

4. WORLD DURUM PRODUCTION (Million Bushels)

5. NORTH AFRICAN DURUM PRODUCTIONMillion Bushels Source: Int’l Grains Council 2/19

6. World Import Durum Demand Million Tons Million Bushels February 2019 IGC

7. WORLD DURUM EXPORTS Million Tons Source: Int’l Grains Council 2/19 Others includes Turkey, Kazak, Mexico and Australia

8. June 1 Durum Stocks– U.S., Canada, European Union -- Million Bushels Million Tons Source: Int’l Grains Council -- March 2019

9. 2018 Canadian Durum Situation • Durum acres increased by 19% to 6.2 million • A period of moderate drought conditions in southern SK, led to slightly lower yields from 2017 • Production of 211 million bushels, up from 182 million in 2017. • Early portion of harvest favorable but last portion sluggish and weather impacted. • Above average grading crop but below 2017 levels. • Exports down 10% on the year overall, but U.S. has become #1 market. Sluggish to Italy and lower to Algeria.

10. CANADIAN DURUMPLANTED AREA & PRODUCTION Million Acres Million Bushels Source: Stats Canada – 12/4/2018

12. Canadian Durum: Grade Distribution

13. CANADIAN DURUM EXPORTSShipments Aug - Jan Million Bushels

14. U.S. WHEAT PRODUCTION REGIONS / CLASSES Durum Hard Red Spring Soft White Wheat Hard Red Winter Hard Red Winter Soft Red Winter Hard Red Winter Durum Hard Red Winter Hard Red Spring Soft White Hard White Soft Red Winter Durum

15. U.S. Durum 2018 • Planted area fell 10% • North Dakota – down 13% • Montana – down 6% • Desert Durum - down 11% • National production up 40% however • Yields rebounded from 2017 drought • 77 million bushel crop, up from 55 million in 2017 • Excellent quality overall • Demand • Domestic food use steady • Exports projected up 70% • Imports – Projected at record high of 55 million bushel, and up 8% from last year. Approx. 35 million bushels of Canadian durum, or 60% of domestic mill grind.

16. U.S. DURUM WHEAT PLANTINGS BY STATE Million Hectares Source: USDA Acreage Report

17. U.S. Northern Durum: Grade Distribution

18. U.S. DURUM PRODUCTION Million Tons Million Bushels Source: USDA

19. U.S. IMPORTS OF CANADIAN DURUM Source: USDA Inspection Dept. of Commerce *18/19 is projection

20. U.S. DURUMExport Demand Trends Source: USDA **2018 is just year to-date

21. U.S. DURUM SUPPLY & DEMANDMillion Bushels Source: USDA March 2019

22. U.S. DURUM STOCKS(June 1) Million Bushels Source: USDA Mar 2019

23. North Dakota Producer Wheat BidsMonthly Average $ per Bushel

24. 2019 World Outlook • World durum area forecasted to decline on price and slower world trade • Discount to bread wheat prices in most markets • In EU – COCERAL is projecting about a 6% cut in planted area. Italy about a 3.5% cut. Dryness concerns in Spain but most other areas expecting average yields. • North Africa -- production likely to fall from 2018 levels. Currently a pocket of intensifying dryness in western areas • North America – lower acres in both U.S. and Canada • Most end-users have extended coverage, some into fall of 2019

25. 2019 Canadian Outlook • Planted area expected to fall as much as 25%....government forecast • Spring wheat more profitable • Slow international trade opportunities have led to build up in inventories • Agri-Food Canada projecting production of 180 million bushels, down 15% • Ending stocks to fall by 25% from a year ago • Very cold winter in Canada, may delay spring planting • Some snow cover, but not as much as some parts of U.S.

26. Winter of 2018 / 2019 Early 2019 moisture outlook for Canadian Prairies. Dry in some areas but mostly near normal.

27. U.S. Durum2019 Outlook • Desert Durum acres down for 4th straight year • Northern Durum acres likely to be down 20- 30% • Production likely to fall back to 60 million bushel level, even with average yields. • 5-year production is 75 million bushels

28. U.S. Northern Durum Factors Decreasing Interest In Durum • Current price levels disappointing and deferred prices not encouraging • Durum discount to HRS • Heavy level of Imports from Canada • Lower insurance price • Durum at $5.98 in 2019 --- $7.11 in 2018 • HRS at $5.77 in 2019 --- $6.31 in 2018 • High hay market due to tough winter...may lead to more hay acres in 2019…low input • Other crops with lower input costs

29. U.S. AVERAGE PRODUCER PRICES Per Bushel Per Ton Source: USDA, Annual Price Summary 2/8/19

30. Regional Production by Crop Reporting Area A 11% C 3% B 11% A 36% B 25% D 14% Montana North Dakota

31. 2019 Projected Crop BudgetsNorthwest North Dakota (Durum Area) Fixed costs are about $70-80 per acre $ Per Acre Prices: HRS $5.52 (14% protein) Durum $5.90 (Top Milling) – Durum revenue based on 75% factor Source: NDSU Dec 2018

32. U.S. Northern Durum2019 Outlook • Planting season likely to be delayed by extremely cold February and March with late season snow cover. • Hopefully April will be warm and dry to move snow off fields steadily • Drought conditions have eased but durum region not excessive for soil moisture • Delays in planting across eastern HRS region and corn belt could cause more market reaction

38. OTHER ISSUES • Canadian Wheat Trade Issues • Producers overall embrace NAFTA but increasing concerns over Canadian wheat trade by producers near border -- Not equal trade • Italian market concerns • Push for country of origin labeling on pasta has impacted U.S. and Canadian exports • U.S. is faring better than Canada. Better able to meet market restrictions? • Causing Canada to shift export focus to U.S. market where concerns over residues are not as strong from mills • What will be future impact?

39. CANADIAN DURUM EXPORTS Million Bushels

40. OTHER ISSUES • Railroads • Good velocities the past couple years but 2018 and 2019 winter is leading to significant delays and service issues • Increase in volumes from non-ag sector of the railroads and prolonged cold period in the U.S. • Increasing cost • Disparity in rail rates between wheat and other commodities like corn and soybeans a concern for producers • Trade uncertainties • When will China start buying U.S. commodities. Soybeans and Hard Red Spring wheat likely favored. • It will have a market impact, when it happens.

41. Secondary Rail Market - ShuttlesPremium/Discount to Tariff $/bushel Value of open market demand for shuttle trains between market participants – Not paid to railroads Source: USDA

42. SUMMARY • 2019 will see lower planted area in most key production countries • World production declines likely, but level is dependent on growing season weather and final yields • North African production will be key, as has been a negative for world trade in recent years. • U.S. planted acres challenged by saturation of U.S. market by Canadian imports • Currently, the deferred pricing levels not reflective of tighter situation (summer and fall of 2019) • Adverse growing season weather likely to see more market response than a year ago, due to tighter acre situation • Ending inventories projected to fall in most major producing countries

43. THANK YOU QUESTIONS?