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The Prices Are Falling! The Prices Are Falling!

Chicken Little is wandering through the forest when suddenly and quite dramatically an acorn falls on her head. Her immediate reaction is that “the sky is falling.” She then runs frantically through the forest announcing to everyone she sees that there is undeniable empirical evidence that the sky is falling. Based on an assumption that the sky must eventually fall, her foolish friends join her in the frenzied journey to warn the populace and seek safety from the king.

Of course, a few questions by anyone one of these friends could have calmed the situation. For example, how much of the sky fell? Did it leave a hole in the sky? Was it only one small piece? What did the piece of sky look like? Questions that could have led to a proper conclusion were left unasked in the hysteria and assumption of the worst.

Like the natural gravitational pull on an acorn, we have seen the spot price for red lentils take a tumble recently. We’ve seen mediocre offerings for new crop and rumblings of even lower prices to come, too. Like Chicken Little, it might be easy to assume the worst and that this was inevitable and anxiously shout “the prices are falling!” We all know that the acorn that fell on her head was simply following nature’s course. Acorns will fall from trees: it’s no reason for alarm or panic. Similarly when the market senses increased production or increased supply, prices will fall. This is to be expected and no reason for alarm.

ASK THE RIGHT QUESTIONS

There are questions to ask that may silence the alarm bells. Why is the market falling today before we have even put our crop in the ground? Is the price slide based on actual production numbers anywhere in the world or assumptions? Will world production really increase?

At this point the falling market is based primarily on speculation, no harvest has taken place anywhere and seeding in Canada is a few weeks away. Reportedly, acres have increased in the Indian subcontinent as well as Turkey. There is little doubt in my mind and likely yours acres in Canada will increase. Yes, world supply will likely increase based on average crops around the world, but there is still much speculation happening on the volumes to be produced. Buyers will inherently shy away from buying large volumes now if there is a real possibility, and there is, that they may buy at lower values in the future. This effectively reduces demand and the illusion of higher supply and lower demand is created, and — as naturally as a nut falls from a tree — this will cause the price of lentils to decrease in value.

And what happened to our little avian friend and her gaggle of friends? They finally happen upon Foxy Loxy. Foxy Loxy asks the group what all the hysteria is about. Again it is explained that the sky is in fact falling, there is no doubt. Feigning his agreement and assistance, and knowing all the while the sky is not falling, the sly old fox leads the anxious bunch down a path they are dying to go already. They are looking for safety, security and a solution. “I will lead you to the king” he says. Eager to follow, they fail to recognize that far from heading for the palace they are heading for his den where they meet their end. Why? This uptight crew was so distracted by hype that they failed to see the reality of the situation. The sky was not falling at all, and they were being taken advantage of.

In short, don’t succumb to mass hysteria and allow yourself to be manipulated by the sly foxes of the world. This can be easier said than done, of course. The buyers of the world want you to run around like a chicken fearing the prices are falling. The price of red lentils is falling that is a certainty, but how far and fast will it fall? The sly foxes of the world are relying on some panic selling from growers and this causes a deeper faster fall

There are those foxy speculators out there now that believe they will buy your red lentils below 20 cents come August, September or October. They may be right, if India, Turkey and Canada have very large crops and if Australia’s weather looks promising. As always the outcome is largely weather dependent. What many speculators fail to grasp, however, is the ability of Canadian growers to successfully store grain and retain its quality and the cash rich position from which they are marketing their production. You can influence the price by your choices. To what extent you are able to do so depends in large measure on the volumes produced elsewhere in the world and the ability of Canadian growers to show solidarity in refusing to sell at low values.

Growers need, as always, to examine as much about the world’s markets and production as finely as they can. Keep an eye on the major production regions of the world — what are their trends, what is their weather? Ask your lentil marketing company for their best intelligence, and then ask others, then ask again. Keep an eye on the weather at home. I believe growers are likely to be able to keep the price at the 20 cent level by their selling habits (of course this again is predicated on production numbers).

The bottom line is don’t panic because someone is telling you we have over produced; we haven’t even seeded an acre yet. Watch, listen and examine the evidence as the growing season wears on. If the sky is falling it will be apparent soon enough. If you’ve been asking the right questions, you will know before it happens.

Jeff Jackson is export marketing manager with Wigmore Farms (www.wigmorefarms.com)based at Regina, Sask. Have you got a marketing strategy question? Send them to [email protected]or call 306-757-3005

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