Grain markets are mostly red this morning as the complex takes a breather from the bullish finish to August (a month that lentil prices moved sideways).
“True contentment is a thing as active as agriculture. It is the power of getting out of any situation all that there is in it. It is arduous and it is rare.” – Gilbert Chesterton (Englisher philosopher)
Sideways Lentil Prices in a Rare August for Grain Markets
Grain markets are mostly red this morning as the complex takes a breather from the bullish finish to August (a month that lentil prices moved sideways). Wheat prices moved to a five-month high yesterday as limited farmer selling from the Black Sea has pushed around global demand to other origins, and thus, prices. In my weekly column for the Alberta Wheat Commission, I talked about this dynamic and if 2020/21 is durum’s year (hint: I’m fairly optimistic).
There’s more headlines lately about how more people will go hungry this year because of COVID-19’s impact on farm labour, logistical supply chains, and prices, namely the newfound unaffordable nature of some commodities.  The combination of supply chain and production issues (especially in southeast Asia, including China) is one of the main reasons why grain prices could climb higher into 2021 according to Total Farm Marketing.  In fact, in China, food inflation is now sitting at its highest levels in over a decade, helped by corn prices as production issues could create a shortfall of about a 30 MMT, or 10% of normal production. 
Intuitively, this means that China will have to import more corn and/or other crops going forward, but that didn’t stop Beijing from suspending barley exports from Australia’s largest grain exporter, CBH, due to “pests”.  It coincided with a proposal from Australia’s prime minister to review and potentially tear up trade deals with certain countries (albeit did not China by name). Of course, we’ve seen this political retribution playbook from Beijing before in the form of the Canadian canola export licenses being suspended.
Rare August Grain Markets Performance
On that note, the supply concerns for the U.S. soybean and corn crop grew in August, which is why we saw a rare occurrence of a positive performance for the grain markets in August! The combination of some dry conditions across the SW corner of the Corn Belt and the derecho storm in Iowa have pushed grain markets higher as yield potential drops.
Supporting grain markets to finish up August was a further reduction in U.S. corn and soybean good-to-excellent (G/E) crop ratings: soybeans dropped 3 points week-over-week to 66% while corn lost 2 points to now sit at 62%.  Weighing heavily on that corn crop rating is Iowa’s crop, where just 45% of the crop was considered G/E! 
Also supporting the bullish push this week was updated yield estimates from StoneX (formerly INTL FC Stone). The firm lowered its national soybean yield estimate by 1.3 bushels t 52.9 bpa, while corn yields were lowered by 2.8 bushels to 179.6 bpa.  As reminder, in the August WASDE, the USDA pegged U.S. corn and soybean yields at new records of 181.8 and 53.3 bpa, respectively. As a reminder, next week on Friday, September 11th, we’ll get the next WASDE report from the USDA.
Lentils Prices Supported by Tight Stocks
As a follow-up to Monday’s Breakfast Brief which focused on the first production estimate from StatsCan and the state of the barley market, I realized I had some wrong years included in the five-year average, and while the change was largely immaterial, please find the updated table below.
I quickly mentioned that the production of pulses was going to be higher in Canada for Harvest 2020, with only chickpeas finding 19%, or 50,000 MT reduction year-over-year. Digging in, we knew that going into Plant 2020, that was likely to be more lentils seeded this year, namely as stronger prices towards late spring helped buy a few acres. The result is obviously a larger crop by about 560,000 MT, or a 25% jump year-over-year, led by Alberta’s increase of 160% or nearly 270,00) MT year-over-year. Worth also mentioning is that, StatsCan’s estimate of 2.8 MMT is a little more than 300,000 MT larger than Agriculture Canada’s latest production estimate of 2.475 MMT.
However, in my opinion, this is a bit of a bearish blip in the grand scheme of things for lentil prices, which have performed well, thanks to strong exports. So much so that StatPub saying that lentils stocks closed out 2019/20 “on fumes, seemingly left with only bin sweepings on farms and in some commercial locations.”  While we’ll get the actual stocks numbers another report from StatsCan on Friday, AAFC thinks that 2019/20 ended with just 25,000 MT left to go around. So yes, at a 96% fall in lentil stocks year-over-year, that does seem like fumes, especially when you consider what AAFC was expecting just a few months ago back in the winter (and as shown in the chart below).
Where Do Lentil Prices Go Now?
The demand is certainly there and quality is likely to meet the needs of international buyers, namely in India, who had reduced the tariff on Canadian lentils back in early June to 11%, but it’s back to 33% as of yesterday.  That’s a bit of a contentious issue for some American lentil exporters, who argue that some American lentils are making their way into Canada and then being exporter as Canadian lentils at the lower tariff rate. 
I can’t say that I’ve seen any of this personally, but I do know that we have plenty of credit-verified lentil buyers on the Combyne Marketplace in both Canada and the U.S. who are consistently looking for product these days. A couple buyers that you might want to consider connecting with (as they buy lentils all over Western Canada and the U.S. Northern Plains). As a reminder, hit the “Connect” button with these buyers so (1) you get auto-notified of their updated bids and (2) when you list your deals, they’ll get auto-notified that you’re looking to sell something.
- AgroCorp (Saskatchewan)
- AgroCorp (Alberta)
- AGT Foods
- Columbia Grain (Plentywood, MT)
- Columbia Grain (Great Falls, MT)
- Global Food and Ingredients
- Prairie Pulse
- Seaboard Specialty Crops
- Victoria Pulse
- W.A. Grain
However, if you’re looking for lentil prices to climb back to the values seen back in 2015/16, unfortunately, you’re going to be disappointed. Nonetheless, we’re also at the time of year where lentil prices are usually at their lowest. In reality though, the higher import tariffs into India has been priced into the market and we’re still seeing some positive values recently trade on the Combyne Marketplace (i.e. 24 – 25¢ CAD/lbs for small reds, 28 – 30¢ CAD/lbs for large green).
As the charts above show, average Saskatchewan lentil prices have pulled back from their spring/early summer highs and, while old crop stocks carried in are tight, the bigger expectations for Harvest 2020 will weigh on further upside for the next few months. Further, given India’s above-average monsoon rains this year, it looks like moisture levels will be more than adequate for the rabi/winter crop, and this will also weigh on upside values for lentil prices.
My point here is that, yes, there is some upside potential for lentil prices in my opinion, but it might not show up until early 2021, but even then, there’s no guarantee. If looking for that best deal, hit the Connect button with any and all of those buyers shared above, and then list your deal on Combyne, so that they’re automatically notified of it and come directly to you.
At 8:15 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3061 CAD, $1 CAD = $0.7657 USD)
Dec Corn: -3.3¢ (-0.9%) to $3.548 USD or $4.633 CAD
Nov Soybeans: -5¢ (-0.5%) to $9.498 USD or $12.404 CAD
Oct Soybean Meal (per short ton): -$1.40 (-0.45%) to $303.80 USD or $396.79 CAD
Oct Soybean Oil (cents per lbs): +0.04¢ (+0.1%) to 32.80¢ USD or 42.84¢ CAD
Dec Oats: -3¢ (-1.1%) to $2.758 USD or $3.602 CAD
Dec Wheat (Chicago): -5.3¢ (-0.95%) to $5.588 USD or $7.298 CAD
Dec Wheat (Kansas City): -4.5¢ (-0.95%) to $4.81 USD or $6.282 CAD
Dec Wheat (Minneapolis): +0.8¢ (+0.15%) to $5.47 USD or $7.144 CAD
Nov Canola: -3.6¢ (-0.3%) at $11.328/bu / $499.50/MT CAD or $8.674/bu / $384.69/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.