There is a saying in economic theory “a rising tide raises lifts all boats.” This thought purports the idea that general improvements in the economy will benefit all participants in that economy.
Some have believed this thinking applies to the agricultural commodities market as well. This would mean that, in essence, strong prices in major grains (soybeans, corn and wheat) should generate strong prices in all market segments, pulses included. Although peas and lentils are far lower in volume and less global in demand than wheat, the global market place needs to be considered when forecasting what pulse prices may do going forward.
This column is a compilation of several presentations from Pulse Days in Saskatoon and conversations with many marketers and farmers during the Crop Production Show.
Global Factors Affecting Prices
Major Grains Supply: On January 12 the USDA released its report outlining higher than previously reported production for soybeans and corn, creating a bearish outlook and causing these to fall in price over the next couple of days. With the second highest world wheat production ever creating the highest carry-in of wheat stocks in a decade, the price outlook for cereals is also bearish. Despite dry conditions in Argentina and some of the U.S. growing regions, softer outlooks for coarse grains and oilseeds for the short term continue.
If, in fact, a rising tide lifts all boats, could a low tide let all boats down? It is difficult to be bullish for the short term on any pulses with decent stocks.
Minor Currencies: Much of the world’s pulses are exported into countries that use what have been described as minor currencies. Many minor currencies have been weakened by concerns over stability.
For example, in September 2010 it took approximately 45 Indian Rupees to buy one U.S. dollar. By September 2011 the rate was around 49, today it is almost 52; the buying power of the Rupee has been reduced. Iran, a market for many of Canada’s high quality green lentils, has seen a currency devaluation of up to 24 per cent, devastating the country’s ability to import the usual quantities of lentils. A similar story can be told for Algeria, a strong market for Canadian green lentils. The effect has been noted in other minor Asian currencies as well.
Again, it is difficult to imagine ourselves bullish for grains that have a reasonable carryover of stocks with major buyers in these kinds of situations.
We have seen what the combination of high carry-in stocks all over the world and weakening currencies has had on the price of lentils.
Red lentils are priced in the mid-teens. Many farmers find this price distasteful, understandably. The price should itself help to alleviate the issue — all of us are expecting a reduction in Canadian acres of around 30 per cent, and reductions elsewhere around the world as farmers have options to plant more profitable crops. With acres reduced and stocks reduced to more appropriate levels, over time (six months or more), we may see price levels of reds over 20 cents.
Green lentils and peas
Green lentils, in my opinion, should rebound a bit faster. World stocks, especially of high quality green lentils, are in not as strong as perceived and buyer demand for No. 1 and No. 2 lairds should remain reasonably strong. Today, farmer prices for No. 2s are in the mid- to low-20s, and high 20s for a No. 1. Farmers have an opportunity to impact prices with their selling habits. I believe in general you can move prices slightly higher by your reluctance to sell, but of course would caution you that that the market feels bearish and fragile right now. Be thoughtful in how you bring your lentils to the market.
The picture for lentils is not extremely bright. As world economic issues and stocks adjust we should see some light at the end of the tunnel. The market does need to buy high quality green lentils. Bring these to market with cautious optimism. Red lentils will take time but the corrections to this market will take place.
Peas will likely be a bright spot among pulses. Stocks of field peas will be tight. This could be the key in keeping pea prices buoyant. Do not be in a panic to sell peas. Keep in close discussions with your processing or marketing company and watch what unfolds this spring and summer. I believe you will see values over $8 per bushel again.
As always I am available to discuss your marketing questions. †