Trying to Find a Pulse in Prices of Pulses

Over the last month, we’ve offered a wealth of insights into the corn, soybeans, and wheat markets. Now, it’s time to focus on some pulses.

The United Nations Food and Agriculture Organization officially recognizes 11 types of pulses, although there are hundreds of varieties.

Around the globe, more than 170 nations grow and export pulses.

This is one of the most diverse and complex areas of the international agricultural sector to cover.

While we’ll talk about individual categories in the future at our insights blog, today, we want to focus on broader supply and demand trends impact the entire market.  

What 2018 Will Bring to Pulse Crop Markets

Heading into November, we’ll be keeping an eye on two important factors in the pulse markets.

First, we’ll know how much farmers in India will plant regarding pulse crops. November is a critical month of Indian farmers as they finish the summer (Kharif) season and prepare for the coming winter (Rabi) season.

India’s Agricultural Ministry said in their First Advance Estimates that they project total food production to come in at 134.67 million metric tonnes for the 2017/18 Kharif crop.

That figure would represent just a 3.86 MMT decline from last year’s record crop. [1]

The ministry reported that total production of pulses for the summer season for will decline to 8.71 million tonnes. That figure is off 7.5% from last year’s record of 9.42 million tonnes for the same time period.

The record production in 2016 presented a trying time for farmers in the region, mainly those harvesting pigeon peas.

Prices for those crops fell well below the support price in key growing states [2].

This year’s summer pigeon pea crop is expected to be 40% higher than the 5-year average. The uptick in pigeon pea production has been tied to weaker prices in other commodity categories.

What will be more important is what the Rabi (winter) crop looks like.

With summer pulse crop production slight off from last year’s record, negative price pressures could equal less interest in larger acreage for the Rabi crop.

The expected production comes at a time that India is sitting on huge stockpiles of pulses.

Stat Publishing anticipates that India will begin to sell off its stocks of 1.8 million metric tonnes of its pulses in inventory.

This isn’t exactly bullish as they’ll be selling these stocks back into the market at a price lower than what they bought them at last year.

Further, the sales of these stocks are expected to impact imports to the country.

The high production and stocks are likely to impact red lentil prices in India at a time that similar price declines are happening in other key markets across the globe.

Outside of India, Focus is on Pulses’ Quality, Not Quantity

Outside of India’s crop, we want to start in Australia on matters tied to pulses.

ABARES increased the nation’s 2017 lentils production by 29% to 540,000 tonnes.

The figure might not be overwhelming on the global scale, but it points to Australian farmers’ increasing shift to lentils production. This is especially impressive considering the drier winter growing season the Aussies experienced.

While that number is important, the more important supply figures are in North America.

For green lentils, we’ve seen quite a bit of optimism for higher prices.

Chuck Penner at LeftField Commodity Research raised concerns about the state of the crop over the summer. Drought conditions fueled a sharp decline in lentil quality in Montana and North Dakota. The same conditions hit the southern Saskatchewan.

The Saskatchewan Pulse Growers (SPG) have forecasted a decline in the U.S. green lentils harvest from 575,000 metric tonnes to 554,000 metric tonnes. That’s not as much as everyone was hoping though.

They have increased their projection for Canada’s green lentil harvest to 801,000 metric tonnes. For Canada, that figure is a 5.25% increase from last year’s harvest. [3]

But it’s important to note that the focus is on quality… not quantity.

Quality of Pulse Crops Matters in 2018

The Western Producer has placed a lot of focus on stories in recent weeks on the condition of the crop.

As they noted in last September, pulse crop processors are especially optimistic about their ability to secure high-quality product heading into the new year.

According to Saskatchewan’s Agriculture Ministry, roughly 37% of lentil crop will come in at No. 1 grade. They estimate that 57% will register at No. 2.

The numbers for peas are similar in quality. The group estimates for peas are 47% for No. 1 grade, and 49% for No. 2. As the Producer’s Sean Pratt explains, more than 50% of last year’s crop had a No. 3 grade or worse. [4]

Such a downshift in quality didn’t help Canada’s reputation for pulse production.

SPG said that after last year’s “poor quality harvest, some buyers lost confidence in Canada’s grading system because they believed it was based on fair average quality instead of official grading standards.”

The association notes that exporters will need to restore buyer confidence if they are going to secure large bids heading into this year. They expect strong sales of No. 2 Canada or better lentils.

That uptick, according to their analysts, is that spreads between red and green lentils will narrow.

Canadian Prices for Pulse Crops Dip

Higher quality has driven prices lower since August. No. 1 large green lentils back then were priced around $0.45 to $0.48 CAD per pound.

Timestamp: we said in mid-August that it was a good time to sell green lentils. 

Today, they are trading below 40 cents in most areas across Western Canada. The bigger issue is that there is no premium for a #1 grade this year.

Usually, there is a spread of 2 to 5 cents but thanks to the abundant supply of quantity that is grading better, a premium doesn’t exist in the lentils market for the Canadian Prairies.

Red lentils have also experienced a downturn in prices, but their decline started all the way back at this time a year ago.

Since then, prices have fallen by about a third, sitting around 20 – 23 cents CAD per lbs. Like green lentils, a premium for #1 quality doesn’t exist.

SPG anticipates that red lentil output will fall by 700,000 metric tonnes to hit 1.7 MMT this year. This was mainly because of a major drop in acres compared to 2016’s growing season.

Where are the Prices for Pulses Going?

SPG argues that growers will see selling opportunities emerge in the coming months.

They foresee stronger prices for chickpeas and green lentils over the first six months of the 2017/18 marketing year.

They argue that prices for red lentils and peas will increase toward the back end of the 2018 calendar.

FarmLead President & CEO, Brennan Turner, would agree with these statements.

The key thing he says is that you cannot expect prices from the last few years. They are gone. And they’re not coming back. Technically, the market has been trending bearish for the last two years, despite prices still being great!

It’s a harsh reality. However, at least for lentils, they’re still one of the best-returning crops on the farm in North America.

The negative factor for Western Canadian producers is that without a fumigation exemption from the Indian government, it’s tougher for Canadian pulses to be competitive in that market.

FarmLead’s Outlook for Pulse Prices

As Brennan noted in a Breakfast Brief post on Friday last week, pulses being sold into India from the Black Sea are being done at a $50 CAD/metric tonne discount relative to Canadian options.

And that doesn’t include the $15 additional cost it’s estimated the extra fumigation out of Canadian ports will be.

For green lentils, Brennan still thinks that anything above 35 cents CAD/lbs or above 27 USD cents is pretty good today. As a reminder, we suggested making thU.S. exports competition and the size of the Indian winter (Rabi) crop) will affect Canadian prices moving forward.

For red lentils, we’re looking for the next sale to be closer to 25 cents CAD or roughly 19 cents USD per pound. The result of the Australian harvest and demand from Turkey will drive prices. India’s demand and Rabi acres will also be a major influencer.

For yellow peas, Brennan started recommending sales back in mid-September as the combines rolled.

There is still some healthy trading activity on the FarmLead Marketplace around that $8 CAD or $7 USD bushel level.  Prices will be largely dependent on Chinese demand moving into the winter months and, again, Indian acreage and demand.

On green peas, they’ve taken a backseat with the rise of yellow pea acreage in North America.

As such, prices have trended lower with yellow peas and are sitting around that CAD $8.25 to $8.50 per bushel in Western Canada. Asian demand will be the factor to watch for moving forward.

We haven’t talked a lot about chickpeas (or garbanzos, as they’re known in many US farming circles). There is a lot of concern over the crop size in Australia. The Australian harvest will dictate prices for chickpeas.

Demand has been growing well over the past few years though.

Sales above CAD $0.70/pound is commonplace on the FarmLead Marketplace today.

Unique Market Coverage on Pulse Crops for Farmers

Finally, we will focus on three specific area of coverage that will interest readers.

We will continue to expand our coverage on lentils, field peas, and chickpeas.

Be sure to stay tuned in November on how you can get access to the best insight available on these three commodity categories.

Also, remember to post your pulses on FarmLead’s online Marketplace.

Roughly 200 credit-approved buyers are constantly looking for pulses today.

You can’t get the best price possible if you don’t use every tool at your disposal.

 

About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.

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