International Demand Setting Pace and Price for Pulses

By Brain Clancey
Stat Publishing

Demand fundamentals for yellow peas and red lentils have shifted dramatically since the middle of December. The drop in the amount of pulses farmers in India were expected to plant this winter is far greater than initially expected.

Even though last summer’s monsoon season ended on a fairly good note, not enough rain has fallen in the right place at the right time to convince farmers to risk planting as much land as they hoped. As a result, land in all major crop categories is down from last year.

Pulses are showing the biggest drop.By the middle of January, area in pulses was 15% below last year, and 8% below the recent five-year average. Seeding is normally 96% complete by that time,suggesting it will not recover by the time seeding wraps up in the middle of February. Average yields could see production of rabi season pulses fall from 13.25 million (M) tonnes last year to just 10.96 M tonnes. India reckons last summer’s kharif or monsoon season crop totalled 5.2 M tonnes. If both estimates prove accurate,total pulse output for the 2014/15 season could sink from 19.27 to 16.16 M tonnes for the smallest harvest since 2009. The implication is imports of all pulses could jump 14% to around 4 M tonnes.

Gram or chickpea is the most important rabi season pulse crop. By the middle of January area was down 17% at 20.2 M acres. Yellow peas and Australian desi chickpeas are favored substitutes for gram. But, Australian desi chickpea production is down 28% from last year at an estimated 384,500 tonnes. If that number is accurate, Australia needs to reduce chickpea exports to their lowest level since 2007. Importers in India will have no choice but to focus on buying yellow peas to cover the shortfall.

The realization India needs to increase pulse imports in 2015 comes at the same time that China is ramping up yellow pea purchases. However, by the end of November, Canada had already exported 1.3 M tonnes of yellow peas, reducing the exportable surplus to around 1 M tonnes.

Throughout December and January,grower bids for yellow peas rose in response to the expected increase in demand and slowing sales by growers.Since the end of November bids have jumped roughly $1.25/ bushel for yellow peas and around 50¢ for green peas.

Seeing the two markets come closer together is not surprising. Markets fear Canada could be sold out of yellow peas before July, while finishing the year with a substantial increase in green pea ending stocks.

Significantly, with the exception of durum, both yellow and green peas are putting in a better than normal performance from a gross income perspective when compared to spring wheat, canola, and barley. This will help maintain interest in peas, though poor movement for green peas will be an issue for many farmers. This should see yellow pea area rise, while green pea plantings drop.

The bottom line for growers is that yellow peas could continue to trend upward until new crop peas are available. However, it will likely be a bumpy ride, with prices spiking when exporters need to fill boats and then dropping to or just above prior bid levels. The spread between yellow and green peas will likely keep shrinking, though green pea markets are doing their best to resist any downward pressure on prices.

Green and red lentils are also feeling the impact of changes in demand fundamentals. Red lentils are helped by a smaller crop in India, and an overall increase in import demand. By contrast, green lentils are suffering from relaxed demand because some buyers are unhappy with the quality of the crop. That is seeing some green lentil demand move into dry edible beans and split peas.

Interestingly, while bids for top grades of green lentils are higher than those for red lentils, bids for Extra No. 3 Canada and No. 3 Canada green lentils are lower than those for red. Since most of crop has fallen into those two grades, weighted average prices for green lentils are actually lower than red. This means the income potential of red lentils is higher,with the result being that land in that class will rise, while land in green lentils could slip. Both classes of lentils are putting in an above average performance from a gross income perspective when compared to grains and oilseeds, but red lentils are clearly putting on a better show. Conflicting demand outlooks could make the difference more obvious before growers finalize seeding decisions.

Official export statistics are only available for the August through November period. Green lentil exports were up 27% over the same period last year because of a dramatic increase in demand from India. Red lentil shipments jumped 42% on stronger demand from both India and Turkey. A key use for green lentils is as a substitute for pigeon pea because the de-hulled products look similar. Last summer’s pigeon pea crop was down 550,000 tonnes at 2.74 M tonnes. Red lentil imports are up because of tight stocks from last winter’s harvest in India, and the belief seeded area would be down this winter. A smaller crop is expected with the resulting underlying fundamentals on India’s domestic market becoming bullish from a demand perspective.