February 3 – Canadian Peas At a Standstill Heading into 2018/19

Agriculture & Agri-Food Canada recently released its Outlook for the 2018/19 crop year.

For peas, it looks like their forecast is the same as ours: a bit bleak.

On January 25, Agriculture & Agri-Food Canada released its Outlook for Principal Field Crops, namely what they’re expecting for the 2018/19 crop year.

For peas, it looks like their forecast is the same as ours: a bit bleak.  

And as a result of prices pulling back, peas acreage are expected to fall considerably in 2018/19.

The AAFC is forecasting the Canadian peas acres to fall 21.5% year-over-year to just over 3.2 million (coincidentally, the same estimate as 2018/19’s lentils acreage forecast). Put another way, the AAFC is expecting Canadian peas acres to drop by almost 900,000 from one year to the next.

These potential 3.2 million acres would be about 17% below the five-year average of 3.86 million (see charts below for a visual). 

Add an average yield of a little more than 37 bushels per acre and only 1.5% abandonment, production is expected at 3.2 million tonnes. This is a 22% decline from 2017/18’s crop of 4.11 million tonnes, and about 20% below the five-year average of 3.984 million (you can basically thank the record 2016/17 crop of 4.84 million tonnes for that average though). 

From a demand perspective, Canadian peas exports have gone into the pooper, relative to where we’ve been. For the current 2017/18, AAFC is forecasting 2.4 million tonnes of peas to be exported.

This is a bit generous considering that Canadian peas exports thus far in 2017/18 are sitting at a measly 1.04 million tonnes. A year ago at this time, 2.02 million tonnes of Canadian peas had been shipped out, and the total marketing-year exports were nearly 4 million tonnes!

Thus, the AAFC’s forecast for 2018/19 Canadian peas exports of 2.6 million tonnes seems a bit out there. 

We, of course, have India’s large Rabi chickpeas crop and their 50% import taxes to thank for this problem. 

Switching gears, total domestic use of Canadian peas is pegged at an unimpressive 815,000 tonnes. It sort of matches 2017/18’s 821,000 tonnes of forecasted domestic demand, but 2018/19’s estimate is 2% below the five-year average of 830,000 tonnes. 

We’ve discussed in detail how there is some additional domestic demand coming down the pipeline, but we’re going to have to wait a few years for it. 

Sidenote: one of our GrainCents subscribers notified us recently that the organic peas buyer we recently featured on the topic of domestic demand, is, in fact, buying conventional peas.  

Ultimately, for Canadian peas, in the next 2 years, it’s all about the exports. China’s increasing peas demand does offer us some hope.

But without a strong export base, Canadian peas ending stocks are expected to balloon. 

Right now, AAFC’s forecast is for the 2018/19 crop year to start with 1.2 million tonnes of peas in the pipeline. 

For perspective, that’s a 4x jump year-over-year, as carryout from the 2016/17 crop year was just 300,000 tonnes. 

While a smaller crop in 2018/19 will likely help ease the inventory pressure, slower exports again will keep the ending stocks close to 1 million tonnes.

So are you saying peas prices have bottomed out, Brennan?

It doesn’t look like there’s much of any production issue in India, meaning the market has priced in a very large Rabi/winter chickpeas crop there (yellow peas are often easily substituted for India’s chickpeas). 

But I do think that there is some potential for further downside yet in yellow peas prices. 

Sidenote: On the FarmLead Marketplace, we continue to see yellow peas deals getting closed between $6.75 and $7.25 CAD/bushel, while green peas are trading between $8 – $8.50 CAD/bushel. Disclaimer: All prices are dependent on quality, location, and movement period. 

Peas-post-new-offer

The tough question to ask is if you’re making money at these prices or not?

We can boast about $10 CAD/bushel that we locked in previously but those opportunities have passed. Let’s play the game in front of us, not the one we’re hoping will come back. Those were the glory days!

Heck, you don’t think I’d like to still be out on the hockey rinks and doing this for fun and getting paid well to do it!? 

Of course! But let’s get back to reality and call a spade a spade: The large supply of peas in the market will certainly limit any price rallies – much like we’ve seen in most other grain markets (i.e. wheat).  

On the green peas side of things, prices have been trading sideways, although the usual rumors of $10 CAD/bushel bids are always short-lived. Something closer to $9 should be the more realistic target (we saw a few of those hit on the FarmLead Marketplace in January). 

The AAFC does acknowledge though that they’re expecting a $30 / metric tonne for green peas over yellow peas in 2017/18 (in 2016/17, yellow peas had a $6 / tonne price premium)

To wrap this up, I’ve said it before and I’ll say it again: the peas market is in a situation where supply is now outpacing demand so new price equilibriums are set. 

Going into the 2018/19 growing season, we’re very cognizant of the dryness in major peas-growing regions in North America. This could easily be the jumper cable to spark peas prices again.

However, with more than a million tonne carryout forecasted for both this year and 2018/19, we’d need a crop closer to about 2.5 million tonnes in Canada – not the 3.2 million AAFC is forecasting – to get things really going again. 

Also, we must consider the rise of Black Sea production over the past few years. While acreage is also expected to pull back in Russia and Ukraine, they’re a player that’s likely here to stay.

We’ve been a bit spoiled the last few years with these record yellow peas prices.

But then again, that’s why they’re called records. And sure, you can tell me, “Brennan, records are meant to be broken”, but I would say that they won’t be broken again in the peas market anytime soon.

The main reason is that the demand structure is not stable enough (or rather, not diverse enough). China could certainly be an awesome market, but that demand will be built up gradually. 

Two or three years from now though, I’m confident that we can see a decent demand structure for peas that will support prices consistently closer to $8 CAD/bushel for yellows and possibly more for greens.

In the meantime, let’s manage our price risk exposure and not just hope that the Canadian government is going to help get the Indian market more open again (technically, it’s still open. It’s just not necessarily competitive on a price front, especially when compared to domestic options).

If anything, it’ll be India changing its import policies because of poor production, and this will support imports / open policies again. India knows its position of power in the pulse markets, and as I’ve mentioned previously, they don’t really owe us peas farmers a thing.

 

2018-canadian-peas-acres-forecast
2018 Canadian Peas Acres Estimate

 

2018-canada-peas-production-forecast
2018 Canada Peas Production Estimate

 

2018-canada-peas-exports-forecast
2018 Canada Peas Exports Forecast

 

2018-canadian-peas-ending-stocks-forecast
2018 Canadian peas Ending Stocks Estimate

 

January 25 – AAFC’s Outlook for 2018/19 Peas

For 2017-18, Canadian dry pea exports for the August to November period were 1.1 million tonnes (Mt), 30% lower than for the same period last year. China imported the largest portion to-date at 0.6 Mt. The leading export market, after China, is India, followed by the US. Total Canadian dry pea exports for the crop year are forecast to fall to 2.4 Mt due to lower export demand from India.

Canadian dry pea supply is estimated to fall by 12% as lower production is only partly offset by higher carry-in stocks. Despite lower supply, carry-out stocks are expected to rise and continue to pressure prices throughout 2017-18. The average price is expected to fall from 2016-17, mostly due to sharply lower prices for yellow peas following the imposition by India, Canada’s largest dry pea market, of a 50% duty on Indian dry pea imports. Green pea prices are expected to maintain a premium of $30/t over yellow peas for the crop year, compared to the $6/t discount green peas had to yellow peas last year.

US dry pea production is estimated by the USDA at 0.6 Mt, down nearly 50% from 2016-17. This was largely due to lower seeded area, high abandonment and below average yields. As a result, Canadian dry pea exports to the US are forecast to be a record 0.25 Mt in 2017-18.

For 2018-19, seeded area is forecast to decrease sharply from 2017-18 to 1.3 Mha, the lowest since 2011-12, because of lower returns relative to other crops. Nevertheless, dry peas continue to be recognized as a beneficial part of a crop rotation plan. Production is expected to fall by 22% to 3.2 Mt, with an expectation of trend yields. Supply, however, is forecast to remain relatively unchanged at 4.4 Mt due to the burdensome carry-in stocks. Despite the tariff in India, exports to other countries are expected to rise from 2017-18 and carry-out stocks are expected to fall but remain burdensome. The average price is expected to fall from 2017-18, due to high carry-out stocks and ample world supply

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.