Mar. 13 – Checking in on Pulses as Grain Prices Correct

While this morning we dig into pulses a bit, grain markets are giving up some of the gains made in a solid rally yesterday, namely led by wheat prices.

“You’re always learning. The problem is, sometimes you stop and think you understand the world. This is not correct. The world is always moving. You never reach the point you can stop making an effort.” – Paulo Coelho (Brazilian author)

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While this morning we dig into pulses a bit, grain markets are giving up some of the gains made in a solid rally yesterday, namely led by wheat prices.

Yesterday, most of the complex corrected with some bargaining buying lifting grain prices higher, with notables including canola prices and wheat prices finding a nice rebound. There are some echoes that this year’s fund positioning is starting to mirror that of 2016, which saw a slow, nearly-four-month rally for grain prices that started in March and ended in late June.

Half of the Brazilian soybean harvest is done, but CONAB – the country agriculture forecaster – lowered the size of the total harvest by 2 MMT to 113.5 MMT. As a reminder, the USDA only lowered its estimate of the Brazilian soybean harvest by 500,000 MT to 116.5 MMT in the March WASDE report last Friday.

On the political front, the US EPA unveiled its plan yesterday for year-round sales of higher-ethanol blends of gasoline. [1] Big Oil is calling the move illegal but President Trump is likely looking for some wins for the U.S. farmer, especially since he’s now proposing a 15% cut to the USDA’s budget, mostly pulling the money back from crop insurance, or “subsidies” as he calls them. [2] Ironically, the USDA is in the process of paying out $12 Billion in trade war payments to American farmers for the impact of import tariffs by China.

On that note, U.S. Trade Representative Robert Lighthizer said yesterday that they and China are in the “final weeks” of talks. [3] Notably, Lighthizer said that any deal would need to see the protection of American IP and the removal of China’s requirement that foreign companies give up technology secrets to their Chinese joint-venture partners before doing business in China.

More domestically, the newest North American free trade deal – the USMCA – is still in the process of getting ratified by Congress but it looks like any progress is getting bogged down by politics. [4]

Pulses Factoring in Weather Premium

Recent reports from the Saskatchewan Pulse Growers Association notes that bad weather is helping the prices for pulses rebound a bit. [5] Specifically, Brian Clancy of STAT Publishing notes the dry weather in the likes of Australia and now India have helped values rebound from some of the lows seen in the past 18 months for pulses.

I’ve talked extensively about this weather dynamic in pulses, specifically timestamping my position of getting more bullish on the peas outlook and the lentils outlook back in late November, right as pea prices and lentils were starting to find some legs. I also noted the smaller size of Australian chickpeas harvest back in September and the importance of India’s rainfall (or lack thereof) in my recap of 2018 chickpea prices.

Looking globally though, we know that production of pulses has certainly pulled back from its highs a few years ago when record prices were being chased by farmers and expanded acreage around the world. Specific to peas, we’ve seen production levels stabilize around 12.2 MMT the last two years, which is about 2 MMT from its peak back in the 2016/17 and 2015/16 crop years.

With demand picking up from China, and the aforementioned dryness in India creating supply concerns prices have improved a bit, which, in turn, has pushed global ending stocks lower. Worth noting, however, is that Canada owns about 60% of total leftover 2018/19 pea inventories, according to Agriculture Canada.

Right now, green pea prices are enjoying about a $3 – $4 CAD / bushel premium in Western Canada (regionally dependent) to yellow pea prices. As such, it’s widely expected that green pea acreage in Canada for Plant 2019 will expand. Accordingly, with more supply, green pea prices are likely to pull back a bit. [6]

Chickpea and Lentil Prices Diverging

The worldwide lentils harvest has continued to trickle lower every year over the past four years, with peak lentil production seen in 2015/16 at 6.8 MMT. India continues to be the largest consumer of lentils (and pulses in general) but with production pulling back, global lentils carryout for the 2018/19 crop year should come in at 476,000 MT, or 36% below the 5-year average.

For chickpea production, total global volumes dropped by more than 13% in 2018/19, with a lot of the decline attributed to Australia. However, thanks to the two previous years of above-average production, 2018/19 global chickpeas ending stocks are expected to come in just under 600,000 MT, 39% above the 5-year average. Does it make sense now as to why chickpea prices are where they are? (If you didn’t know, chickpea prices have been pretty weak!)

Worth mentioning is that with the dryness in India, in its 2nd Advanced Estimate of the 2018/19 crop, the government there lowered its estimate of the rabi (winter crop) harvest of pulses by 1.08 MMT to 15.02 MMT. [7] That volume of pulses would be the second-largest rabi harvest ever in India though. This certainly has put a little more pressure on prices for pulses in India, but the government has continued to raise minimum support prices, which is why Canada and the U.S. are collectively taking India to WTO court over those MSPs and import tariffs on pulses! [8]

Time and Mother Nature will certainly tell if India’s food and agricultural trade policies have too narrow or short-term focus. My gut says the only focus from the government entities is for those running said programs to maintain their positions of power and doing what it takes to win the upcoming election, in which hundreds of millions of farmers in India will vote. Put another way, it seems like agriculture and politics are walking more hand-in-hand than ever.

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

At 8:00 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3434 
CAD, $1 CAD = $0.7444 USD)

May Corn: -0.8¢ (-0.2%) to $3.65 USD or $4.875 CAD
May Soybeans: -2.8¢ (-0.3%) to $8.948 USD or $11.952 CAD
May Soybean Meal (per short ton): -$0.60 (-0.2%) to $302.40 USD or $403.93 CAD
May Soybean Oil (cents per lbs): -0.15¢ (-0.5%) to 29.84¢ USD or 39.86¢ CAD  
May Oats: +3.3¢ (+1.2%) to $2.713 USD or $3.623 CAD
May Wheat (Chicago): -6.8¢ (-1.5%) to $4.463 USD or $5.961 CAD
May Wheat (Kansas City): -7.5¢ (-1.7%) to $4.353 USD or $5.814 CAD

May Wheat (Minneapolis): -3¢ (-0.55%) to $5.578 USD or $7.45 CAD
May Canola: -2.9¢/bu (-0.3%) to $10.365/bu / $457/MT CAD or $7.759/bu / $342.13/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.

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