Oct. 30 – Will Pea, Lentil Prices Get Spooked by Movement Slowing?

Grain markets are mostly green this morning as they try to rebound after feeling top heavy, something that I continue to see in pea and lentil prices.

“Whenever you’re scared of something, don’t let that define you. We all feel it, but step up.” – Vince Vaughn (American actor)

Will Pea, Lentil Prices Get Spooked by Movement Slowing?

Grain markets are mostly green this morning as they try to rebound after feeling top heavy, something that I continue to see in pea and lentil prices. As discussed in Wednesday’s FarmLead Breakfast Brief, the US Presidential Election continues to consume a lot of the headlines, and since today is the end of the month, there’s expected to be some further jockeying of positions and shoring up of the books for reporting purposes. Oh, and one week after the election, the USDA will publish their the next WASDE report on Tuesday, November 10th.

New COVID-19 lockdowns in Europe continue to weigh heavy on equity markets as economic concerns continue to mount. However, grain markets have been able to rebound as another really strong week of export sales for U.S. corn and soybeans have perked the bulls back up. Total sales volumes of U.S. corn so far in the 2020/21 crop year at sitting at 30.6 MMT, or nearly 170% more than the same time a year ago! Nonetheless, the December 2020 corn contract is now sitting back below $4 USD/bushel on the futures board in Chicago. [1]

As I mentioned in Monday’s FarmLead Breakfast Brief, canola prices were looking very top heavy, and throughout this week, we’ve seen some heavy selling by both speculators on the futures board and farmers in the cash market (including some healthy values & volumes on the Combyne Ag Trading Network). Ed White of the Western Producer had some great points this week that it’s important to learn from these types of rallies and that good risk management can still be implemented. [2] Further, in a conversation I had this week with Shaun Haney of RealAgriculture.com, I outlined exactly how to guard against these top-heavy markets and manage your exposure to the downside. [3] The TL;DR is that you:

  1. Shouldn’t be influenced by recent sales (AKA avoid recency bias & that your cashflow situation is OK right now),
  2. Should think about cashflow needs in 6-12 months & maybe contract for those deferred periods, and thus
  3. Shouldn’t ignore 2021 new crop pricing options!

Pea Prices Suggest Strong Demand but…

As I mentioned a month ago in the last FarmLead Breakfast Brief of September, there’s certainly some strong demand in pulses, but the run-up that we’ve seen in prices is also feeling a bit top-heavy. As I mentioned 2 weeks ago in another FarmLead Breakfast Brief regarding yellow pea prices, “I’m cognizant that this fast and hard of a rally is not sustainable.” At the time we were seeing $8.50 CAD/bushel handles being traded on the Combyne Ag Trading Network, but this past week, we’ve seen $9 handles trigger in many areas of western Saskatchewan and a lot in Alberta!

The easiest way to get in on the action is post your new Listing on Combyne, so that your trading partners know that you’re maybe looking to do a deal. As a reminder, if you already have some of your trading partners in your Combyne trading network list of Connections, they will automatically be notified of your new Listing so there’s no need to call them all and have the same conversation over and over again. For your trading partners not yet on Combyne, you can easily share your Listing with them so they can get a sense of where you’re looking to pull the trigger next.

Share your Combyne Listings with your trading network

But I have to hammer home this point that the recent run up in prices is pretty significant and the pull-back could be even more aggressive, considering that ending stocks could grow if pea exports don’t meet the near-record expectation of 3.8 MMT that Agriculture Canada is currently forecasting (record of 3.95 MMT was set in 2016/17). Through Week 12, Canadian pea exports from licensed exporters are tracking one-third higher than a year ago with 1.14 MMT sailed thus far. However, there is a major risk that this pace is going to slow down and that this estimate from AAFC won’t be achieved and it’s because of one critical piece of the supply chain: shipping containers.

Canadian pea prices & ending stocks October 2020 estimate from AAFC

Lentil Prices Benefit from Tariff Extension but…

Given all the supply chain disruptions that COVID-19 has caused, seacans/shipping containers are in high demand right now and are being sent back to Asia empty, instead of being filled with the likes of peas or lentils. [4] Further, major ocean logistics company, Hapag-Lloyd, announced last week that it is temporarily suspending their outbound/overseas container shipments from North American ports (which means they’re purposefully sending containers back to Asia completely empty). [5].

Bottom line, this is a huge blow for both American and Canadian agricultural exporters of everything from soybeans to peas and lentils. Quite literally, about 30% of Canadian pea and lentil exports are shipped out in containers, so with limited supplies, I have major concerns that the current pace of aggressive buying will start to slow down. Of course, exporters could pay more for these containers to stay in North American ports so that they can be loaded with peas, lentils, or whatever, but that will intuitively bite into the price that companies are bidding in the country.

Further, those who have already signed contracts, we may see delayed movement, and with seasonality, pea and lentil prices could start to pull back, thus, putting these contracts potentially at risk of actually being executed on. Be sure to read your fine print! Speaking of contracts, the new grain contracts capture functionality that we added to the Combyne Ag Trading Network has quickly become one of our most actively used features, namely because:

  1. You can edit all final contract details, including adding specific notes for yourself to review later,
  2. Tag a trading partner to the contracted deal (even if they’re not a Combyne user!),
  3. Export/share the contract with relevant persons (i.e. your accountant or whoever runs the books on the farm); and
  4. If your trading partner is on Combyne, continue the chat with them about logistics/execution!

How to capture Grain Contracts on the Combyne Agricultural Trading Network

Coming back to the grain markets, the good news for lentil prices is that India just announced this week that they’ll be keeping the import tariff on Canadian lentils at 11% until December 31st, 2020 (versus going back to up 33% like was their original plan). [6] Strong demand from Turkey is also helping lentil prices (especially small red lentil prices) stay elevated, largely because their harvest is possible just half of the nearly 400,000 MT that the government there is currently suggesting. [7] That said, Canadian lentil exports from licensed players are tracking 88% higher year-over-year with 372,000 MT sailed.

Canadian lentil prices & ending stocks October 2020 estimate from AAFC

Ultimately, the extension by the Indian government on lentil exports is likely going to be a big supporter of lentil prices over the next few months, but my expectations for slower movement means that bid activity from buyers could slow. On the flipside, the aggressive rally in pea prices, combined with the expected slowdown in movement suggests that a pullback in prices could be just as aggressive as the rally we’ve seen over the last few weeks. Now, I’ll admit that there is a scenario that, because of the strong demand, the lack of freight options could actually help push prices higher, but this seems largely irrational for buyers and exporters to do, namely because Canadian products will get priced out of the market, especially when you consider Australia’s pulses harvest is coming off as we speak. [8]

Coming back to today though, we’re at profitable levels for both pea and lentil prices, but with ample bin space this year (thanks to heavy movement these last few months), farmers may just wait it out for better values. My concern however, is that those better values that you might be hoping for less likely now to show up when you factor in the container issue. Manage risk accordingly and ensure the next deal(s) you’re looking to do, be it for old or new crop, is known to all your trading partners.

Happy Halloween and have a great weekend!

P.S. Unless you live in Saskatchewan or Arizona, don’t forget to set your clocks back an hour this Sunday!

To growth,

Brennan Turner
CEO | FarmLead
TF: 1-855-332-7653

Due to some technical issues this morning, grain markets futures prices aren’t in today’s FarmLead Breakfast Brief but you can review them here at your convenience.

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.

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