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.
We have to apologize for the tardiness of this week’s Digest – we had to re-review some data points over the weekend and update some charts. With this transparency in mind, and that we’re now past the halfway point in 2018, we’re using this Digest to provide an in-depth assessment of the peas market in the second half of 2018. We’ll be discussing market factors such as:
– North American Production Trends
– Global Production Trends
– The Indian Pulse Situation
– Peas Export Trends
North American Production Trends
In the last week of June, we got updated acreage reports from both the USDA and Statistics Canada.
StatsCan said that Canadian farmers planted 3.6 million acres of peas this spring. This is down 7% from the April estimate and down 12% year-over-year.
If we assume that a little more than 98% of peas acres get harvested (the average), and yield is a bit below the 5-year average of 38 bushels per acre, then 2018/19 Canadian peas production could come in at 3.51 million tonnes. This would be almost 15% or nearly 600,000 tonnes below last year’s Canadian peas crop of 4.11 million tonnes.
South of the Canadian border, the USDA said that American farmers planted 881,000 acres of peas this spring. This is down nearly 3% from the March estimate and down 22% year-over-year.
To the south, if we assume an average harvest rate of about 94.6% and an average yield of 36 bushels per acre, then 2018/19 U.S. peas production could come in at a little more than 800,000 tonnes. This would be 6% or roughly 44,000 tonnes above last year’s drought-riddled crop of 770,000 tonnes. However, this is also 20%, or 200,000 tonnes, below the 5-year average of 1 million tonnes of peas produced in America.
With these acreage estimates on hand and the following assumptions: harvested acres will be in line with the 5-year average, a slightly below average new crop yield in Canada due to dry weather conditions, and an average yield in the U.S., we expect the North American new crop peas production to drift lower, as shown on the chart above.
Global Production Trends
Earlier in June, we also reported that ABARES, the Aussie equivalent of Agriculture Canada, lowered Australia’s 2018/19 peas production estimate to 213,000 tonnes. This is down by about 76,000 tonnes or 26% year-over-year.
These production declines in major peas growing regions of the world were mainly triggered by a record pulse crop in India. Back in May, we reported that the Indian government raised their 2017/18 total pulse harvest by 560,000 tonnes to a record 24.5 million tonnes (this includes both summer Kharif and winter Rabi crops). While we knew the size of the crop was going to be big, the bearish reality has now set in.
All things considered, from a production standpoint, the outlook for peas could be viewed as neutral as spillover from bearish news in India are balanced out by the bullish news of production declines elsewhere.
Worth noting is that, although official production estimates of Russia’s 2018/19 peas production have not been published yet, we expect that the Red Nation’s new crop peas harvest to drop year-over-year. While Mother Nature lent a hand to last year’s crop in Russia which supported a surge of exports, this is not likely going to be the case in 2018.
The Indian Pulse Situation
Back in May, we reported that India implemented an import quota licensing system where only 100,000 tonnes of yellow and green peas imports would be allowed through the end of June. We now know that India has extended its restrictions on peas imports until the end of September.
This is another attempt by the Indian government to artificially lift domestic prices of pulses due to a supply glut. Unlike other pulses like chickpeas and lentils that are seeing multi-year lows for their prices, government intervention seems to be helping peas prices in India.
But the recent news coming out from India sets a bearish tone as we were expecting that heading towards September, Indian pulse supplies were likely to tighten up. Such a scenario could have propelled greater Indian demand, even with the 50% tariffs in place. However, with the import quota restriction being extended, it’s unlikely that India will ramp up purchasing any time soon.
This comes as we head towards 2018/19 production as India will soon start planting its Kharif (summer) crop. According to the Indian Ministry of Agriculture (IMD), Indian farmers will seed about 8.3 million acres of pulses in the Kharif crop, down almost 20% or nearly 2 million acres from the 10.3 million acres seeded at this time last year.
But the pulse production of India almost wholly depends on rainfall. Through last week, cumulative monsoon rains were pegged at an average of 184.7 mm for the whole country. That is 7% behind the average, and thus, a bit bullish.
Looking regionally, the central, east, northeast, and south Indian peninsula are receiving 85-93% or rains. The northeast is in shortest supply, with total rains being 27% below average. Conversely, in the major agricultural region of the northwest, there have been some significant moisture events as total precipitation is 71% above the normal for this period.
According to IMD, rainfall activity is likely to be normal to above normal in the next two weeks.
Canadian Peas Exports
Back in early June, we reported that China continues to be a top buyer of Canadian peas. According to the Canadian Grain Commission (CGC) monthly data, the People’s Republic bought 284,200 tonnes in May, basically double what was purchased in March. The May shipments are also the largest monthly quantity of Canadian peas bought by China since August 2014. Bangladesh was the second-largest buyer at 25,000 tonnes, while the U.S. was third with 6,800 tonnes.
At first glance, this suggests that China is importing more Canadian peas to go into feed rations as a substitute for soymeal as the trade war talk heats up and China looks to rely less on American soybeans.
It is worth noting that India purchased 30,000 tonnes of peas from Canada in May, despite the import restrictions in place. The main takeaway here is that with China showing such a strong appetite for Canadian peas, the outlook for Canadian peas exports is looking slightly more bullish than it was a few months ago, despite what is going on in India.
What’s in Store for Pea Prices for the Rest of 2018?
Seasonal price movements are an important factor that comes into play around this time of year. For a number of crops, including peas, late August to October is when a low typically occurs, as harvest pressure kicks in. Prices are expected to rebound in November / December, once the harvesting season is complete.
More specifically, yellow peas had the best performance in July (likely due to production concerns) and December (when the harvest pressure is over). Green peas prices have performed well in August and July.
Check out our graphs and tables below for the past 5 years of the movement, highs, and lows of yellow pea and green pea prices in the last half of the calendar year.
As we stand right now, if we see some dry weather stick around throughout this summer, we could see the 2018/19 grain marketing year mirror 2012/13 when Western Canada experienced severe crop damage. Due to weather-related problems in the fall of 2012 at harvest, Western Canada’s peas production plummeted to 3.3 million tonnes.
Average peas prices rallied to as high as $9.30 CAD/bushel in 2012/13, but it’s worth noting there was also growing demand from India at the time. We need to point out that Agriculture Canada’s average price for the 2018/19 marketing year is 6.40 CAD/bushel. Given StatsCan’s June acreage estimate of 3.6 million acres and FarmLead’s estimate of 3.51 million tonnes for peas production in 2018/19, we think that the average price for the 2018/19 marketing year should be much higher at $6.90 CAD/bushel.
Overall, compared to where we were sitting at the beginning of the year, the prospect for peas prices has improved materially. This has been supported by stronger peas prices in India as well as the increasing demand in China. That being said, just because there’s a slightly bullish bias to the peas market doesn’t mean we stop managing risk. Put another way, the best risk managers stay diligent and that’s what we’ll do (P.S. “we” includes you!)
Have a great week!
– Brennan, Garrett, and Adrian
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
June 17– Peas Weekly GrainCents Digest
June 10 – Peas Weekly GrainCents Digest