Grain markets this morning are mixed as today we look into the pulses complex, the coming La Nina, and last night’s U.S. Presidential debate.
“If I advocate cautious optimism it is not because I do not have faith in the future but because I do not want to encourage blind faith.” – Aung San Suu Kyi (Burmese politician)
Pulses Demand Trending in Right Direction (but….)
Grain markets this morning are mixed as today we look into the pulses complex, the coming La Nina, and last night’s U.S. Presidential debate. On the latter, most can agree that last night’s face-off between former Vice-President Joe Biden and President Trump wasn’t all that presidential.  While nothing specifically in agriculture was addressed, there was plenty of interruptions and insults flying both ways, although President Trump was clearly the antagonizer.
Later today, at 11AM CST, we’ll the USDA’s next installment of the Quarterly Grain Stocks, as well as the annual Small Grains Summary report. In the stocks report, the market is expecting to see 2.25B bushels of corn, 576M bushels of soybeans, and 2.242B bushels of wheat still available as of September 1st, 2020. For the small grains report, production of total wheat is set at 1.841B bushels, including 1.198B bushels of winter wheat, 577M bushels of spring wheat, and 62M bushels of durum. With today being the last day of the month and calendar quarter, we might see some fireworks in the grain markets as positions are closed up.
Going forward and thinking about the next few months, most weather organizations now agree that there’s a high likelihood that we’ll see a La Nina event this winter. Australia’s Bureau of Meteorology was the latest group to add their name to the list, meaning the Land Down Undaa is going to be wet the next few months, especially in eastern and northern areas which have been extremely dry the last few years. [2l While every La Nina is different, historically, La Nina events have also worsened Argentina’s worst corn and soybean harvests, including 2018 which saw soybean product fall more than one-third from its seasonal average.  Dry weather is also seen in southern parts of Brazil, so we’ll be watching conditions there and obviously Argentina, going forward.
On the flipside, in North America, a La Nina over the winter months tends to bring wetter-than-normal winters for BC, Ontario, & Quebec (AKA more snow to shovel) and colder-than-average temperatures in the Canadian Prairies.  In the U.S. Midwest, a La Nina even tends to bring a dry, warmer-than-average temperature, suggesting that American winter wheat crops could have a see-saw next few months of dormancy. Similar to Argentina’s 2018 soybean harvests, U.S. winter wheat harvests in 2018 after the 2017 winter La Nina were also sub-par.
Pulses: Pea Prices Climb on Strong Exports
In Monday’s Breakfast Brief, I highlighted some of the updated estimates from AAFC regarding Canadian crops supply and demand, notably larger canola supplies and record-tight durum inventories. As promised in Monday’s Breakfast Brief, today we’re looking into the pulses complex, namely that of peas, chickpeas, and lentils.
Through week 7 of the 2020/21 crop year, Canadian pea exports are cruising with nearly 660,000 sailed, which is up 60% year-over-year. For the full year, Agriculture Canada is forecasting total pea exports of 3.8 MMT, up 400,000 MT from the August estimate. Combined with what I would call “decent” domestic demand, Canadian pea stocks by the end of 2020/21 should total just 250,000 MT, or just above the 233,000 MT we ended 2019/20 with.
And thanks to yellow pea prices in India increasing significantly over the last few months, demand looks to be strong.  On the flipside, we know that China continues to be a big buyer of Canadian peas and that trend is likely to continue, if not increase a bit from last year, but I remain cautious of this strong volume of early shipments potentially meaning slower shipments in the winter. Keep in mind also, however, that there could be less U.S. pea export this year, given the harvest of 841,000 MT is down about 17% year-over-year.
Nonetheless, this current demand is explaining some higher pea prices of late, including $7.50 CAD/bushel yellow pea bids in Saskatchewan on the Combyne trading network, and even some $8 trades in Alberta. As a reminder, hit the “Connect” button with any buyers on Combyne so that you’re consistently in the know of their updated deals.
With Canadian farmers estimated to be at least 29% sold on their 2020/21 peas so far (up from 22% at the same time a year ago), there’s certainly more product going into the market than usual as well.  Of course, this could be a positive for pea prices if demand remains strong through the winter, but if it doesn’t, values will likely pull back, with most analysts thinking green peas will see the largest price squeeze.
Pulses: Chickpea Prices Waiting on Final Harvest Data
When it comes to pulses, there’s no crop that’s more important to India probably than that of chickpeas. Unfortunately, there looks to be plenty of supply in the world, as well as from Indian farmers this year, which is intuitively keeping a lid on chickpea prices. This partially explains why Canadian chickpea exports fell 29% year-over-year to just 105,000 in the 2019/20 crop year with less buying from Pakistan and Turkey.
Agriculture Canada’s expectations are that only 125,000 MT will be exported in 2020/21. This somewhat aligns though with the smaller chickpea harvest of 239,000 MT that Statistics Canada said a few weeks ago. However, there’s some disagreement in the pulses trade as to whether or not StatsCan has missed this forecast, as yield numbers out of Saskatchewan suggest this year’s chickpea harvest could be less than 200,000 MT.  In that light, U.S. chickpea production is estimated by the USDA to fall 38% year-over-year to below 200,000 MT, mainly because of planted acres falling by 44% from 2019 to 250,000 acres. Conversely, Australia’s
The bigger question mark for chickpea prices (and largely the pulses market in general), is just how much India will produce this year. Just last week, India’s agriculture ministry raised their outlook for kharif/summer crop pulses harvest to 9.31 MMT.  If accurate, that’s a 20% increase year-over-year. Further, the Indian government is increasing their minimum support prices for the rabi/winter crop by 5% for chickpea prices to about $667 USD/MT (or 30.25¢ USD/lbs or 40.5¢ CAD/lbs if converting prices in metric tonnes to pounds). 
Ultimately, Canadian chickpea stocks are expected to climb significantly to 330,000 MT, which would be more than double their 150,000 MT forecast from just last month. Of course, if the chickpea production number is downgraded, we’ll likely see carryout back down around where 2019/20 ended, or about 250,000 MT. As you can tell from the chart below though, that’s still a significant increase over the last few years, and thus will likely continue to weigh on Canadian chickpea prices.
Pulses: Lentil Prices Helped by Smaller Tariffs (For Now)
For lentils, the Indian government is also raising their MSP by 6% to $657 USD/MT (or 29.75¢ USD/lbs or 40¢ CAD/lbs) as they try to incentivize farmers to plant more pulses amidst the bigger goal of self-sufficiency in pulses production. Given the good soil moisture profile, and this higher purchase level of lentil prices in India, farmers are likely to see a bigger rabi/winter crop. Inherently, this likely means that the Oct 31st deadline of Indian import tariffs on Canadian and Australian lentils will stay in place, and at that time, it’ll go back up to 33% from the current 11% levy. .
As a reminder, the import tariff on Canadian lentils was just lowered to 11% a few weeks ago, after the Indian government realized it would need more imports to satisfy their promises to help feed its population through the COVID-19 pandemic.  Something to consider, however, is that Canadian lentil exports from licensed CGC exporters are tracking about 28% below last year, with just under 110,000 MT sailed thus far. However, as you can tell in the weekly exports chart below, shipments have started to speed up, coinciding with India’s import tariff reduction.
All this in mind, we know that lentil prices traded sideways in the lead up to and following the reinstatement of the 33% import tariff from India. However, we’re now seeing 34¢ and 35¢ CAD/lbs bids for large green lentil prices in Saskatchewan and Alberta on the Combyne trading network. Similarly, small red lentil prices have also pushed higher, with 28¢ CAD/lbs consistently trading on Combyne. That shouldn’t be ignored as many analysts agree that the prospects for green lentil prices are much more positive than that of small red lentils, given higher competition out of Australia for the later and supplies held by major importers after their COVID-19 buying spree. 
Said buying spree amounted to a new record of 2.7 MMT for Canadian lentil exports in 2019/20, up 33% year-over-year. Of course, offsetting this is the near-record lentil harvest of 2020/21 of nearly 3.1 MMT, up about 37%, or 823,000 MT from 2019’s harvest, albeit there’s much skepticism in that StatsCan overestimated things in their last estimate.  Across the border, the U.S. lentil harvest is pegged at just under 300,000 MT, but that’s up 21% year-over-year. What this adds up to stronger export competition, and thus, larger inventories, which AAFC is now estimating at 475,000 MT, a significant increase from 2019/20’s tight carryout.
Ultimately, it’s hard not see lentil prices pulling back (and possibly that of other pulses) once India’s import tariff is raised up to 33% again in a month. Also potentially pressuring lentil prices is the Turkish Lira falling to a record low this week on geopolitical risk in the region, which would make importing lentils and other pulses more expensive.  Ultimately, other than this summer, we haven’t seen lentil prices and pea prices for a few years and that should not be ignored when it comes to your marketing strategy.
In that light, I’d encourage you to list the next deal(s) you’re looking to do on Combyne, so your current and newly found trading partners know your deal intentions. P.S. if some of your buyers haven’t joined you on Combyne yet, share your Listing with them and remind that that the platform is free, and it’s the easiest way for them to know where you’re sitting.
See you in October!
Due to some technical difficulties this morning, futures grain markets prices are not available in today’s Breakfast Brief but you can review them here at your convenience. (Said technical difficulties also explain the delay in getting this morning’s post out!)