Written January 25, 2009
Using recently updated Saskatchewan Ministry of Agriculture cost of production numbers, it would seem that among the better returning crops for 2009 (using costs and returns of various crops as it stands today), mustard and lentils rank pretty high.
Lentil prices in the past week or two have seen a bit of an uptick, notably on the reds, but also to a lesser extent on the greens. PFCanada is already sold out on 2008 red/green lentil production, but a bump to 37 cents a pound on reds for January-February movement has been seen of late.
Reports say this recent spike is due to a sale into the Middle East that needs to be shipped before India begins its harvest. I think this an opportunity to price for growers with product left to sell.
Recent intelligence suggests that Turkey does not seem to be in a position to replenish red lentil supply this year (due to dryness or seed shortage.) This increases chances for another profitable year for Prairie farmers growing red lentils. And with a relatively strong red price, green lentil prices will have to be competitive to maintain acres.
I don’t know what that competitive red price will be (must still respect fact that a relatively high lentil price rations demand), but it encourages farmers to think of red lentils as being a cropping leader… defined as where Canada can probably produce 600,000 tonnes and still be able to export it all at a profit (2008 was production about 450,000 tonnes.)
This is lots of time to accelerate acreage interest here in the coming months to inflate ideas that just maybe, Prairie farmers will go nuts with lentil plantings, pushing red production potential above 600,000 tonnes. That’s a potential danger.
Lentil acreage can expand if farmers expect a price north of 20 cents per pound. Several 100,000 acres can be stolen from a sloppy yellow pea market alone. With high odds of that happening, lentil acreage could push to a new record high — perhaps 2.0 million acres overall?
With old crop red lentils bids accelerating quickly back above 30 cents, such an aggressive move in short order suggests demand may be strong enough to hold prices for a while. But it is likely a “sell” nonetheless.
Old crop sustained at this price level for a few months would increase the likelihood of new crop bids at 23 to 25 cents as starting point. No such bids yet, but likely in due course. I suspect 25 cents is a price level needed to entice farmers about making a new crop contract commitment.
Interesting to note the views expressed at Pulse Days in Saskatoon in January. From what I heard from the show, new crop bids are fairly scarce at this time as buyers fear risk of offering prices for fall ‘09 delivery given the volatile nature of pulse markets this past year.
Panelists commenting on the lentil market outlook predicted prices will remain steady for a while, but fade going into new crop. It was suggested that the recent sharp spike in old crop red lentil values is a gift that producers shouldn’t ignore. I agree.
On large green lentils, prices will eventually sag due to the poor pace of exports. Perhaps prices will hold steady through February and March, but will probably trend lower into April/May/June.
Indian lentil plantings are up 13 per cent year on year. With 3.7 million acres seeded at January 1, that’s an increase of 445,000 acres from 2007-08. This increase is being attributed to good planting conditions and an increase in government support. With an increased Indian crop, this will mean fewer exports from Canada required — a reduction perhaps of 60,000 tonnes.
As such, green lentils have not seen as much strength as reds and are currently trading at 27-28 cents per pound for large green lentils. Medium green and small green lentils are trading at 23-25 cents FOB farm for January-February movement. We have not seen any new crop bids for green lentils as of yet but we hope to see some action coming down the pipe in the near future.
Pressed for a new crop price prediction, reports at the Saskatoon show suggested new crop red prices are likely to end up in the 15-to 20-cent range, while large greens will be 20 cents or lower. That’s not going to get growers excited and I’m not sure I can agree with a sub-20 cent new crop red projection.
A lot of things could happen to change the new crop forecast. Still, as compared to alternative crops, lentils look pretty good and seeded acreage is expected to increase. There is no suggestion at this time that farmers need to feel anxious to grab a new crop pulse bid quickly for fear of losing them.
with buyers coming in and out of the market over the last couple weeks.
However, PFCanada did identify a pre-Xmas opportunity for its clients from Viterra, which offered new crop contracts with an Act of God clause at 32-34 cents a pound for oriental mustard and 37 cents for yellow. Good price relative to other cropping options and the bonus of an Act of God clause encouraged us to propose initial new crop forward contracting. The Viterra contract was limited to 400-600 pounds per acre with Act-of-God, buyers call on delivery to July 2010, first right of refusal on balance.
PFCanada opinion was to maximize your limit on this contract. Producers looking to sign up new crop mustard should send in firm offers to ensure they are able to get their acres in when such pricing opportunities are made available.
PFCanada is already sold out on 2008 mustard. The old crop market has been flat over the last month with not a whole lot of change in price. Currently yellow mustard is trading at 42 cents per pound for early movement with the possibility of 45 cents for movement out to June. Brown mustard is more sluggish at this time with bids ranging from 25-30 cents fob farm. Oriental mustard is currently trading at 35-38 cents fob farm as well.
I have yet to hear much of anything on new crop pricing opportunities for new crop peas. On old crop, bids have recently moved up towards $6 per bushel for yellows for mid-point Saskatchewan for January-February movement as fresh demand has surfaced.
Green peas are still holding their premium with trades made this week at $8 per bushel picked up on farm (Februar-March) depending on quality and location of the product.
Some buying interest has been indicated from the likes of Bangladesh, Sri Lanka and Pakistan, but key buyer India remains stalled. It remains a sluggish pricing environment for the edible pea market generally, something which has existed through the fall and early winter seasons.
Peas need to work through at least two key bearish market influences in the coming year. The first is the likelihood of a vastly improved rabi or winter pulse growing season in India. Second is the record large quantity of peas that Canadian growers are expected to carryover into the 2009-10 marketing year. Full bins, slow demand at the present time and sluggish bids for both old and new crop remain the state of affairs for the edible pea market at this time.
Pea lessons learned in 2008
1) Peas are just another food choice and can be rationed with high price.
2) $10 per bushel edible yellow price to Prairie farmer is just as silly a high as $4 per bushel edible is a silly low.
With our thinking re-oriented, our position today is that $7 per bushel edible yellow is high enough to support long standing food demand. Anything higher broadly associates with eventual demand rationing. Sub-$5 edible yellow offers insufficient profit to farmers to sustain supply growth. Market needs to trade normally somewhere in between to maintain adequate balance of supply and demand.
Edible pea market at this time remains fundamentally bearish with current marketing year Canadian exports running behind that of this time a year ago. Canadian pea production for 2008-09 is record large, and so too is the prospect of record large Canadian pea carryout this year. Carryout is really the key here. Projected currently at over 1.0 million tonnes, that works out to perhaps 4 months of normal demand. That’s lots.
Prices today range at levels that historically associate with demand expansion and supply contraction, but that is a process that evolves over time. At this time, Indian warehouse surplus remains intact, but will eventually get cleaned-up. That means demand from our primary buyer by volume can begin to resume, perhaps even accelerate. Perhaps we are seeing evidence of that today with the recent bump upward in pricing.
But in meantime, yellows will probably spend a lot of time between $5 and $7 bushel. Maybe the best thing that could happen for improved price prospects a year out is a sustained sloppy price structure for now to better position demand for expansion, while at the same time deflecting some portion of 2009 Canadian pea area into lentils, canola, wheat or what have you.
Greens will be priced no more than $1 per bushel over yellows in 2009 unless a quality wreck occurs. In other words, a wider premium won’t be caused by lack of supply growth effort.
North America needs about 1.0 million tonnes of green production and has failed to achieve that relative to demand, where seed coat colour matters. In 2009, we should begin to repair supply and return respective premiums to max $1 per bushel. The risk is that farmers plant too many greens in 2009.
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