Current Sales Position:
We are 90% sold on old crop 2017/18 yellow peas.
We are 80% sold on old crop 2017/18 green peas.
We are 20% sold for new crop 2018/19 yellow AND green peas.
This week we start in Ukraine where the Ag Ministry there says that the harvest of fall-seeded crops has finished and the spring-seed crops are coming off quickly.
In total, Ukraine has harvested 33 MMT of winter crops from 23.5 million acres, with 96% of planted acres getting combined.
For peas, Ukrainian farmers have harvested 771,000 MT from 1.03 million acres (96% of the forecast). This equates to an average yield of 27.3 bushels per acre, which would be 28% lower year-over-year and 4% below from the 5-year average of 28.5 bushels per acre.
If accurate, the total production of 771,000 MT is going to be a drop of 29% year-over-year and well below from the APK’s Inform’s forecast of 1 MMT. It would, however, be 20% above the 5-year average of 640,000 MT.
We need to point out that with a harvest of just 771,000 MT in the books, Ukraine will not be able to meet its export target of 680,000 MT in 2018/19, as forecasted by APK Inform. For perspective, last year, in 2017/18 Ukraine exported 780,000 MT of peas. Further, the 5-year average for Ukrainian peas exports is pegged at 355,000 MT.
Ultimately, this is bullish news for North American peas producers (and prices) in the long term.
Peas Prices Pressured
In the short term though, we saw harvest pressure on the peas complex this week. Average yellow peas prices delivered to Saskatchewan elevators lost some ground this week as harvest pressures pushed values down to around $6.00 CAD / $4.60 USD per bushel (down 10¢ on the week).
Comparably, green pea prices in Saskatchewan are down sharply, now sitting at $7.50 CAD / $5.70 USD per bushel (down 60¢ CAD or 50¢ USD on the week).
Another factor impacting peas prices this week was the country of Turkey.
Why You Need to Understand Turkey
This week, Turkey saw their currency, the Lira, collapse to a record low against the U.S. Dollar, thanks to ongoing trade and political turmoil between the U.S. and Turkey.
On one hand, the U.S. administration has imposed tariffs on steel imports from Turkey. On the other hand, Turkey is very adamant that the U.S. is hosting some political adversaries of President Erdogan. Also, Turkish credibility on the financial markets is weakening as the current president wants to exert control over the economy. The bottom line is that the Turkish currency had a free fall this week and is now down 20% month-over-month to roughly 17¢ USD.
Developments on the Turkish currency front had a ripple effect hitting other countries such as India where the Rupee lost ground against the U.S. Dollar this week as well. We need to point out that, in India’s case, this has to do more with increasing inflation over the past couple of months. At the time of this writing, the Indian Rupee is worth roughly 0.014 ¢ USD, which is down 7% year-over, as shown on the chart above.
How is this relevant to peas?
Well, the weakening of the Turkish and Indian currencies is really a double-edged sword.
A weaker currency is going to make these two countries’ exports more competitive on the international markets. However, the purchasing power of the Turkish and Indian importers has been severely compromised. This is a bearish factor for peas.
A few months ago, we thought that improved demand prospects for peas from India were becoming more likely. Due to the weaker purchasing power of the Rupee, the likelihood of this happening sometime soon has diminished.
Very explicitly though, currency wars have joined the bearish camp of peas factors now.
India Still Missing Rains
Through August 16th, the Indian Meteorological Department (IMD) pegged cumulative monsoon rains at an average of almost 21 inches for the whole country, which is 9% behind the average.
This is an improvement though 1% from last week when we saw cumulative rains in the country at 10% behind the average. Over the next 2 weeks, the IMD expects rainfall activity to be normal to above-normal over most parts of the country except parts of northern India
According to the Indian Ag Ministry, the seeding of the pulse crops in the Kharif season was completed as of this week.
Divergent Pulse Market Access
Pulse Canada has recently come out and said that it’s their opinion that “India has made a real shift in its domestic policy to pay Indian farmers more than the world price for its pulses”. He stressed that the Canadian pulse industry is working hard to make sure Canada is ready to respond quickly to changes in the market.
It’s not exactly clear to us how Pulse Canada can respond quickly to a change like India though. The only way you do that is to basically have a diversified export market.
Another sticky matter is fumigation. India had to renew its fumigation policy on July 1st and Canada did not get an exemption. Both Canada and India’s governments have agreed to continue to work on the issue, but it’s very clear that India holds the upper hand in these conversations.
Ultimately Pulse Canada is working on pushing India on more predictability and transparency to their trade policies so as to not shock the market so aggressively.
Very concretely though, this isn’t really how markets work. Even when rumors start to spark up, you’ll see prices react accordingly (look no further than the US-Chinese trade war and the impact on soybean prices on every little rumor that comes up).
Canadian Prairies Continue to Bake
The Canadian Prairies continued to bake this week. Under high temperatures and trace amounts of precipitation, topsoil moisture conditions “have significantly worsened”, according to Saskatchewan Agriculture.
A quarter of the fields are considered to have their topsoil moisture now rated very short. With this conditions in mind, crops have either finished out and/or dried down rapidly and thus, yield and quality may be affected.
That being said, the Saskatchewan peas harvest is estimated at 21% complete. This is behind both last year’s progress of 28%, but ahead of the 5-year average of 16% harvested. Heading into next week, the 5-year average for peas harvest progress at this time of year is 37% complete.
Next door in Alberta, the peas crop rated G/E is sitting at 59%, down 1 point from last week ago and 6 points behind the 5-year average of 65%. In Alberta, peas harvest in the southern region is the most advanced, with slightly more than 20%% combined. Across the province, the peas harvest is pegged at slightly more than 10%. We expect the harvest to pick up in the coming weeks.
U.S. Peas Harvest Moving Along
Last week, North Dakota’s peas harvest was pegged at 59% complete, up 31 points week-over-week. This basically matches last year’s pace of 58% harvested and the 4-year average of 57%.
In comparison, Montana’s peas harvest was estimated at 59% complete, which is up 24 points week-over-week. This is still behind both last year’s progress of 86% and the 5-year average of 72% harvested.
Going into tomorrow’s USDA Crop Progress report, the five-year average for Montana peas harvest progress is pegged at 83%, while it is estimated at 62% in North Dakota.
On the crop conditions front, 79% of North Dakota’s peas crop is rated G/E, which is a drop of 1 point week-over-week. However, it’s still well above the seasonal average of 65% and last year’s G/E rating of 19%. For tomorrow’s report, the seasonal average for North Dakota’s and Montana’s peas G/E ratings is 80%.
Next door, 64% of Montana’s peas crop is rated G/E, down 3 points from the 66% reported last week. This rating is 1 point behind of the 4-year average of 80%. We need to point out that the USDA has not released crop condition ratings of Week 33 last year, as the local harvest was nearly wrapped up. For today’s report, the seasonal average for North Dakota’s and Montana’s peas G/E ratings is 63%.
Can Peas Prices Fall Further?
Going forward, developments on the Indian and Canadian production and weather fronts are important to watch. We’ll know more details on the Canadian crop on August 31st when StatsCan releases its first production estimate of the 2018/19 crop year.
However, the weakening of Turkey’s currency and the purchasing power of its consumers is a bearish development this week and will also require careful monitoring going forward.
Also, before the end of August, India’s Ag Ministry will release their final report on 2017/18 crop production, including peas.
In our July 8th mid-year outlook for peas, we said that the seasonal tendency is an important factor that comes into play around this time of year. We indicated that for a number of crops, including lentils, late August to October is when a seasonal price low typically occurs, as harvest pressure kicks in. Prices are expected to rebound between November and December once the harvest is complete.
However, a lower than expected peas harvest in Ukraine reduces this Black Sea nation’s ability to export peas on the world market. Thus, this could be beneficial for peas exports from Canada.
Overall though, we’re seeing the harvest starting to get priced in as we speak and there continues to be less downside risk and instead, more sideways to higher action is expected. We should be focused on filling our forward contracts and looking for opportunities thereafter.
Have a great week!
– Brennan, Garrett, Adrian, and Victor
August 13– Peas Weekly GrainCents Digest
August 5– Peas Weekly GrainCents Digest
July 29– Peas Weekly GrainCents Digest
July 22– Peas Weekly GrainCents Digest