January 16 – Canadian Lentils Acres Debate Rages

It’s crop/trade show season time and the beer gardens and the booths have been busy debating next year’s acreage.

We’re here to put the lentils acres debate to rest.

It’s crop/trade show season time and the beer gardens and the booths have been busy debating next year’s acreage.

We’re here to put the lentils debate to rest.

Before the new year, I suggested that Canadian lentils acreage could drop as much as one million acres.

And without India’s Rabi crop of a record 38.3 milloin acres of pulses having any harvest issues, it doesn’t look like lentils prices are going to spike back to 2016 levels (let alone 2017 values) any time soon.

Today on the FarmLead Marketplace, we’re seeing red lentils flirt between 18 – 19¢ CAD / pound, while large green lentils are toying between 33 – 35¢ / pound.

As a reminder, we’re currently 80% sold on 2017/18 old crop red lentils and 60% sold on large green lentils. We’re willing to be more patient though on lentils for our next sale, but if you’re not at these levels, I would stress getting there soon and get it posted on the Marketplace.

So with lentils prices trending sideways to lower lately, the tension about acreage rotation remains succinct.

But, let’s remember that the prices mentioned above are pretty darn good, especially when compared to other crops like malt barley or spring wheat.

Today, I think we could still see Canadian lentils acreage dip about a million acres to somewhere between 3.4 and 3.6 million acres.

For perspective, 2017/18 Canadian lentils acreage came in at 4.41 million acres and the five-year average is 3.65 million.

The big kicker is whether or not we can get the ending stocks number lower. Currently, estimates are ranging between 750,000 and 1 million tonnes of Canadian lentils still available for sale by the end of the 2017/18 crop year..

This would be a record and, if the top end of those estimates are realized, it would literally 2.5 times as much as the 405,000 tonnes the 2016/17 crop year ended with. (For further perspective of why we’ve seen lentils prices pull back as aggressively as they did from the 2015/16 crop year, the Canadian lentils carryout then was just 73,000 tonnes!).

Ultimately, we think that if ending stocks stay above 800,000 tonnes, lentils prices will only pop because of three potential things:

  • Harvest issues with India’s Rabi crop (as mentioned, it doesn’t look like it’s going to happen though);
  • India, realizing it’s poor policies, relaxes its 30% import tax on lentils; or
  • We see a smaller 2018/19 North American lentils crop because of dry conditions

There is a fourth factor, which is acres going down way more than what i’m currently estimating, which is certainly a possibility but I’m okay at these numbers today.

Where will shrinking pulse acreage go in 2018?

Canadian pulse seeded area will likely be down significantly in 2018 because neither prices nor demand are likely to improve soon.

That raises the question of where the former pulse acres go. For many, it will likely mean more canola area, and that raises worries about disease pressure.

Pulse area surged in the past few years as production problems in India and developing demand from China created opportunities for new sales.

Total area for the two crops climbed to a little more than 10 million acres in 2016, up almost four million from just three years before.

Total area slid back last year to about 8.5 million acres — 4.4 million for lentils and 4.1 million for peas — but that was still the second largest ever.

The problem is that a big part of the demand for pulses evaporated when India produced a record smashing crop last year and virtually overnight became self-sufficient. That is the main reason for the lack of sales to India.

The duties and fumigation issues that India’s government imposed are only a side note to the key issue of ample domestic supply and India farmer anger at falling prices.

With India out of the market, Canadian year-end lentil stocks are expected to rise to 750,000 tonnes, or about four months worth of demand, and a million tonnes or more of peas. In both cases, the stocks-to-use ratio would be record high.

India’s demand is unlikely to come back soon.

India’s government estimates that winter crop all-pulse area stands at 38.3 million acres, up nine percent from last year. Chickpea area, the main winter pulse, is 13 percent higher year-on-year. Harvest begins in March, and unless there is a sudden weather disaster, India is on its way to another bumper crop.

India’s ultimate goal in the pulse sector is to be reliably self-sufficient, but analysts warn of the danger of permanently cutting off imports.

G Chandrashekhar, who often writes about the sector in the Hindu Business Line, made that warning last week in a column. He said imports could be better regulated if the right to import was limited to actual users — that is, pulse processors. It would remove speculators who import and horde product in the hope of profiting when the price rises.

I don’t know if this would work, but his comments about the danger to the Indian government of blocking imports long term are wise. Weather is fickle and bumper crops won’t always be there. Supplies from Canada and elsewhere will be a welcome safety net when drought again appears, as it always does.

However, while all this is being resolved, Canadian farmers are starting to produce their seeding plans.

I would not be surprised to see pulse acreage fall by two million acres back to levels common in the early part of this decade.

A significant portion of that will likely go into canola, even if it means pushing rotations.

Farmers produced a record canola crop in 2017, but demand is good. Exports are ahead of last year, and domestic crush is about the same year over year. Year-end stocks are expected to rise from last crop year but are not expected to be particularly burdensome.

The current cash price is $10 to $15 a tonne higher than at the same time last year, and that is with a loonie that is trading around US80 cents, about four cents stronger than last year at this time.

Last year canola rallied in the January to March quarter, partly because of a falling loonie and strong exports. Cash prices were attractive, near $500 a tonne in mid-March. That helped farmers decide to boost acreage.

Will we see a similar rally this year?

I think no one can accurately predict the direction of the Canadian dollar.

All I can note is that for the past two months job creation in Canada has been much stronger than expected and the jobless rate dipped to a 41-year low of 5.7 percent.

The expectations for the Bank of Canada to raise interest rates this month are rising, and stronger interest rates usually mean a stronger dollar.

There is still a concern about moisture in Argentina’s soybean crop, but Brazil seems to be doing well. A record U.S. soybean seeded area is expected because corn is unprofitable for many.

Wheat is a seeding alternative. Its price is tethered by ample global supply, but if current dry weather in the U.S. Plains continues and the recent bitter cold actually does lead to winterkill in Kansas, there is potential for a short-term price rally that could draw more land into spring wheat.

H/T: The Western Producer
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.