Lentil Prices on the Verge of Breakout in 2020?

Lentil Prices on the Verge of Breakout in 2020?

2019 was a tough year for lentil prices as new lows were achieved amidst decent production and weaker trade volumes, setting 2020 up for a rebound. Lentil prices were on the upswing as we flipped the calendar into 2020, as strong exports and production concerns abroad have helped improve prospects. Small red lentil prices were averaging just under 20₵ CAD/lbs to start the year, but in the past few weeks, we’ve seen values as high as 24₵ CAD/lbs trade.

Average small red lentil prices in Saskatchewan through December 2019

Large green lentils have seen a similar rally, with traded values climbing up to 27₵ CAD/lbs in some places for #2 quality and 29₵ CAD/lbs for #1. While we’re not at highs of the 2018/19 crop seen for large green lentil prices, the trend seems to be wanting to get there. The bigger question though to answer is whether or not lentil prices will be able to stay at these levels, head higher, or revert back to their lows seen in the 2018/19 crop year?

Average large green lentil prices in Saskatchewan through December 2019

Lentil Prices Helped by Smaller Lentil Harvest

Before December 2019, the 2019/20 lentil harvest was looking fairly large in North America, thanks to some better growing conditions than the 2018/19 harvest. However, a large revision by Statistics Canada in their December final estimate pulled the Canadian 2019/20 lentil harvest down to 2.17 MMT. While this past year’s lentil harvest is still 75,000 MT, or 3.6% larger than 2018/19, it is 12%, or 307,000 below the five-year average (albeit that average does include the record 3.19 MMT lentil harvest of 2016/17).

Agriculture Canada's December 2019 estimate of this year's lentil harvest and exports

One thing worth noting with this past year’s lentil harvest was rains in September that somewhat marked a divide in quality. [1] Accordingly, a lot of comparison to the lentil harvests in 2014 and 2016 have been made, but the quality premiums seen those years aren’t available in this year’s prices. The main reason behind that is in those years, lentil prices were largely skewed towards shipments to India. But India’s lentil imports from Canada down sharply since then, the quality premiums in today’s lentil prices are nowhere near as pronounced as 2014 and 2016.

In the U.S., the lentil harvest fell dramatically as acreage decline substantially, and this has likely helped lentil prices. With harvested acres falling 40% year-over-year, the American 2019 lentil harvest came in at just 244,000 MT, a decline of 36% year-over-year and 28% below the five-year average. Aggregately, within North America, the total lentil harvest 2019 of 2.41 MMT was 14% below the five-year average but just 2.5% behind harvest 2018’s 2.47 MMT.

U.S. 2019/20 lentil harvest and harvested acres

Other than the depressed nature of lentil prices going into Plant 2019, one of the other main factors behind the decline in the American lentil harvest is because of large tariffs imparted on U.S. lentil exports to India. Since India’s tariff on American lentils is 55% (compared to 33% levy on Canadian lentil exports to India), this has essentially shut out American lentils from India.

That said, there was some accusations made by the president of Columbia Grain back in September that U.S. lentils were being shipped into Canada, and then shipped out from the Great White North as Canadian lentil exports. [2] While Canada certainly imported more American lentils in the 2018/19 crop year, the Canadian Grain Commission says that they haven’t been able to verify any of these claims.

Lentil Prices Influenced by Harvest Abroad?

While India is easily the most important factor when it comes to the direction of lentil prices, there are a few other countries worth keeping an eye on. The first is Australia, where, after a 3rd straight year of drought, the lentil harvest wasn’t that bad, all things considering. More specifically, despite harvested acres falling 21% year-over-year, the Aussie lentil harvest was able to rebound by nearly 5% to 338,000 MT.

ABARES December 2019 estimate of the Australian lentils harvest and harvested acres

Kazakhstan has emerged as a solid lentil player, especially exporting into Turkey, but weaker lentil prices there as well pulled acreage down in 2019. [3] More specifically, the USDA suggested back in May that planted pulse acres would fall 29% to 761,000 in Kazakhstan. From that, it’s estimated that Kazakh farmers harvested about 200,000 MT of red lentils that’s mostly going into the Middle East (as mentioned) and Europe. That said, there’s many claims that Kazakhstan is becoming “The Saskatchewan of Asia” and as they figure out better agronomic practices, could be a major player to contend within the next 10-15 years. [4]

India’s Impact on Lentil Prices

As mentioned though, the major factor when it comes to lentil prices (or any other pulse crop for that matter) is what happens in India. As mentioned in our 2020 outlook for pea prices, an extended monsoon rainy season meant a delay in the seeding of India’s winter/rabi crop, namely in the major producing states of Madhya Pradesh, Karnataka, and Maharashtra. Specific to lentils, Madhya Pradesh usually accounts for about 35% of all rabi lentil acres in India (average of the last five years), second to only Uttar Pradesh’s 36%. With the late rainy season, the start of the lentil planting season was delayed (usually from October to December) but there are some bears out there thinking that the extra soil moisture could help the winter crop.

That said, through January 16, 2020, the India government says that nearly 4M acres of lentils have been planted for the rabi/winter crop. [5] That’s down about 222,000 acres, or about 5.3% year-over-year. Conversely, total acres planted with pulses in India is up about 7% year-over-year to 38.9M acres. For context, the total area of pulses harvested in Canada in 2019 was about 8.4M acres. Ultimately, private estimates of India’s total pulse crop harvest have been falling.

Further, with 2019/20 Indian pulse crop demand estimated at 25.4 MMT, domestic stocks are razor tight, meaning they’ll have to import more pulses. Complicating things is the smaller summer/kharif pulse crop harvest which is now estimated at just 8.23 MMT, down from an initial forecast of more than 10 MMT. [6] Since that supply usually alleviates any price shocks, the smaller harvest means that prices have climbed. The bottom line is that India will likely need to import about 3 MMT of pulses with the India Pulses and Grains Association estimating that another 900,000 MT of pulses will need to be shipped in before March (AKA when the rabi harvest comes online). [7]

That said, I’ve said many times over the past few years that India’s policies towards food price inflation is hampered by knee-jerk reactions, instead of long-term planning. Case in point, in fall 2018, India’s government raised their minimum support prices (MSP) for lentils but using a different process to calculate values. More specifically, they use outdated values for crop inputs, meaning the price is artificially lower (relative to their past calculations), which in turn, keeps domestic lentil prices (AKA masur prices) depressed. The bottom line here is that government intervention in a market will ways negatively disrupt trade, and in the long-term, prices.

Lentil Prices Supported by Return of Exports

With the MSP values in question in India, it’s more than likely with the smaller harvest of 2019/20 there, the government will push to incentivize more production for the 2020/21 crop year. Therefore, the window to take advantage is basically right now (or at least the next couple of months) and it appears that Canadian exports are doing just that. Through week 22 of the 2019/20 crop year, Canadian lentil exports are tracking about 150% above the same week a year ago with 284,300 MT shipped out from CGC licensees.

Canadian 2019/20 cumulative lentil exports through Week 22

That said, we know that Canadian lentils often get exported not in Panamax boats, but in bulk or bags via container. Accordingly, Agriculture Canada raised their expectation of Canadian lentil exports a few months ago to 2.1 MMT. Combined with the downgrade of production by Statistics Canada in December, 2019/20 Canadian lentil ending stocks are expected to come in at an acceptable level of 450,000 MT.

Agriculture Canada's December estimate of average 2019/20 lentil prices, ending stocks

Before going full bull mode on lentil prices, this carryout would be down 29%, or 184,000 MT year-over-year but it is basically in line with the five-year average. Moreover, with the stocks-to-use ratio sitting around 20%, this isn’t exactly screaming a bull case for lentils prices. However, with lentil acres and likely production likely down in India this rabi crop, we know that India will have to import more. This will likely support lentil prices in the near term. However, any price rallies are more than likely to be abrupt with 1-2₵/lbs weekly swings more than possible.

Looking beyond March though, lentil prices will likely fall back into their seasonal pattern of decline before stabilizing a bit through the summer months. That said, I think lentil prices could find some new highs in the next month or so for old crop, but new crop prices (which are a bit tough to come by, which is surprising for this time of year) aren’t likely to creep up until more of the lentil harvest in India is understood. Can we see today’s prices a year from now? I think that’s more than likely, barring any further major government intervention.

To growth,

Brennan Turner
TF: 1-855-332-7653
@FarmLead on Twitter

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

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.

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