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, both green and yellow peas prices have started to stabilize after drifting a bit lower with the rest of the grain complex over the past few weeks.
In the U.S., there is a small premium of yellow peas prices over green peas.
Average yellow peas prices delivered to Saskatchewan elevator are sitting around $6.50 CAD / $5 USD per bushel. Comparably, green pea prices in Saskatchewan are pegged at $8.20 CAD or $6.25 USD per bushel.
A quick glance at the latest Feed Pea Benchmark report in Western Canada reveals that with feed peas prices drifting lower, they are now competitively priced in comparison with other feedstuffs like corn, feed wheat, or barley.
Therefore, we may see some additional demand come in from livestock operations as they look for cheaper alternatives for their feed rations.
This short term price pressure in peas prices can also be explained by a slowdown of Canadian exports.
Our thinking on the slowdown was because China has been out of the market this month.
Regardless, China still remains the top buyer of Canadian peas and likely will continue to do so until India comes back in the market (something we expect to happen later in the 2018/19 crop year). Ultimately though, we expect 2018/19 Canadian peas exports to improve.
There are still some bearish challenges though, including the situation in India.
Global Pea Market Developments
According to an Indian pulse trader, India is currently sitting on a huge pile of stockpile of 2.7 million metric tonnes (MMT) of chickpeas and yellow peas.
Such a development is obviously expected to delay the demand for Canadian peas.
It is worth pointing out though that the Indian government managed to increase pulse prices on the domestic market. Therefore, this trader thinks that the Indian demand will rebound next year despite government-imposed import tariffs.
Another pulse trader in China is suggesting that the People’s Republic will once again be a big buyer of Canadian peas in 2018/19. However, buying activity will not kick in right away.
Feed mills in southern China imported 300,000 tonnes of yellow peas as a buffer against the uncertainty surrounding the soybean market. Due to some substitution issues in the feed rations, this quantity has been diverted to the food / human consumption channel.
It is worth noting that there is a $1 CAD per bushel price gap between how much Chinese buyers want to pay for Canadian yellow peas ($6 CAD per bushel) and what Canadian growers expect (more than $7). Given that we’re likely going to see higher feedstuff prices in China because of the tariffs on U.S. soybeans, Chinese buyers might have to compromise.
Quite simply, these are the implications of a trade war.
Another bearish factor is the 2018/19 Black Sea peas harvest, which is just starting up.
Countries such as Russia tend to sell their crop right off the combine because they lack storage capacity. One analyst is expecting 1.9 MMT of Russian peas and another 220,000 MT out of Ukraine this year. This would be down year-over-year. As we’ve seen the last few years, because the Black Sea harvest happens before the North America’s, those supplies usually get into the international market (i.e. China) first.
Getting back to India, peas prices are edging higher this week. The main reason is that we’re seeing some weak Kharif seeding progress, something we acknowledged two weeks ago.
But the Kharif season’s pulse planting in India is dependent on rainfall.
Through this past week (ending July 18), cumulative monsoon rains were pegged at an average of 319.2 mm (or 12.6 inches) for the whole country. That is 3% behind the average 328.4 mm (or 12.9 inches)
Looking regionally, the central and south Indian peninsula are getting a rain surplus of 15-19% above the average.
Conversely, the east, northeast, and northwest are in shortest supply, with total rains being 10 – 31% below average.
According to the Indian Meteorological Department’s forecast for the next two weeks, rainfall activity is likely to be normal to above normal over east, northwest, and central India. Thereafter, above normal rainfall activity is very likely to confine over northern parts of the country.
On the global front, one bearish factor that we need to point out is the surge of the Baltic Dry Index (BDI). This is a barometer for the price of moving major raw materials by sea, including commodities such as peas.
As the chart shows, the BDI skyrocketed by nearly 50% since the end of May as the trade war between the U.S. and China became more of a reality.
Why is the BDI relevant for peas? With Canada shipping crops such as peas to so many different export destinations, the country is often at a freight disadvantage compared to many of its competitors such as Australia and countries in the Black Sea region such as Russia.
The Condition of Peas Crop is Okay
Last week, we reported that the North American peas crop is in good shape.
While there is no update from Saskatchewan or Alberta crop conditions this week, we have been seeing some wild weather. Many areas have seen crop damage due to wild weather that brought hail, severe winds, localized flooding and high temperatures. In contrast, some areas got the much needed moisture. The bottom line is that weather across the Canadian Prairies continue to stress crops.
According to the Alberta Agriculture crop report, precipitation over the past month has been very spotty across the province, resulting in variable soil moisture reserves and crop conditions. The peas crop there rated good-to-excellent (G/E) is sitting at 74%. This is down 3 points from 77% reported last week but 4 points above the 5-year average of 70%.
To the south, 81% of North Dakota’s peas crop is rated good-to-excellent (G/E), a 2 point jump week-over-week. That’s ahead of both the seasonal average of 66% and last year’s G/E rating of 28%.
Next door, 79% of the Montana peas crop is rated G/E, down 3 points from the 82% reported last week. This rating is way ahead of the 16% reported at the same time last year and 30 points ahead of the 4-year average of 49%.
What to Watch For Going Forward
To sum up, in our opinion, the outlook for the peas market remains neutral-to-bullish.
The biggest influencers going forward continue to be Chinese buying, weather developments in India, as well as crop development and weather here in North America.
India is certainly the X-factor, as they represent the largest opportunity. Although it’s unlikely that the volume of Canadian peas exports to India won’t return to levels seen 2 years ago, there is some rising optimism for numbers improving there. India’s demand will depend on two major factors: local weather and trade policies set out by the government.
That being said, Canadian pulse organizations need to focus on a strategy that is less about reliance on one just market, and instead be more diversified. It’s healthy to see an increasing focus on the domestic pulse processing sector, but Canada will always be a net-exporter of peas.
Have a great week!
– Brennan, Garrett, and Adrian
July 15 – Peas Weekly GrainCents Digest
July 8 – Pea Prices Outlook for the Second Half of 2018
July 1 – Peas Weekly GrainCents Digest
June 29 – US Peas Acres Down 22%, Stocks Up 1% YoY
June 29 – StatsCan Reports 3.6 Million Acres of Peas in 2018/19
June 24 – Peas Weekly GrainCents Digest