Pulse Market Report
The Pulse Market Report is a monthly newsletter featuring market analysis and commentary aimed at helping Saskatchewan pulse producers make the best decisions for their crop production and marketing. September 2014 Saskatchewan Pulse Growers This report is also available at www.saskpulse.comPea and Lentil Market Fundamentals September 2014The 2014 growing season has not been unfolding as desired this year. The battle with the elements is leaving many farmers still guessing about final production and quality results for this crop year, allowing little time to worry about marketing. However, changes in tonnage and quality should also lead to adjustments in marketing strategies. This is especially important for the handful of crops where Canadian production comprises a significant share of the internationally traded volume of the crop. The Canadian crops that carry weight in the international markets are durum wheat, flax, to some degree canola, and certainly lentils and peas. These crops comprise up to 60% of traded volume internationally, and therefore major changes in Canadian production, especially if unexpected, can lead to adjustments in traded prices to reflect either the unanticipated shortfall or excess in production or quality. In difficult years, like 2014, the adjustment should be supportive to prices. Lentils – Canadian situation Lentil harvest is only about 20% complete at the time of writing and, after a trip through south and central Saskatchewan in early September, we have concerns about quality and harvest losses leading to considerably lower marketable volumes of lentils, and especially of green lentils where Canada’s only competition are U.S. green lentils. Frost warnings from last week (Sept. 11) and/or more rain could result in further downgrading and harvest losses due to shelling. Saskatchewan Agriculture already published a lower yield number than StatsCan by 225 lbs/acre on August 28, and that number indicates that projected production will fall by 15% from 1.93 million (M) tonnes to 1.64 M tonnes. We think this number may still be optimistic, and it does not yet include losses to marketable supply due to quality deterioration. To add to the tightening supply picture, StatsCan published a low July 31 lentil carry-in number of only 169,000 tonnes, down 45% from the previous year. This means that available supply following harvest will be around 1.8 tonnes (before quality deductions), down from the 2.1 to 2.5 tonnes that was expected earlier (depending whose numbers you follow). This represents a drop in Canadian lentil supply of 14-18% from last year.
Marlene Boersch Mercantile Consulting Venture Inc.
Argentina 2%
Australia 5%
Canada 63%
France 7%
Russian Federation 10%
United Republic of Tanzania 2%
Ukraine 4%
United States of America 7%
World's Top Pea Exporters
Argentina 1%
Australia 14%
Canada 60%
Sri Lanka 0%
Egypt 0%
Nepal 1%
Russian Federation 1%
Syrian Arab
Republic 1%
Turkey 11%
United Arab Emirates 2%
United States of America 8%
Belgium 0%
China 1%
World's Top Lentil Exporters
Internationally, projections are that the world lentil production will fall by about 5%, primarily due to reduced Canadian production. Usage and traded volume of lentils are projected to fall by about 2-3% due to higher prices, but even the reduced usage leaves the world lentil balance sheet very tight as the overall carry-in is very low. The high export volume from Canada for the last quarter of the crop year of 537,858 tonnes is ample testimony to that. For the new 2014/15 crop year, Mercantile had earlier projected Canadian export sales of 1.7 M tonnes, but given the above scenario, exports will have to be rationed because supplies will not likely sustain them.So, does it matter that Canada is facing a reduced volume and quality harvest in the scheme of things? We certainly think so. There will have be a price response to the changing equation to ration exports. Processors in the U.S. and Australia are already paying more for their lentils than Canadians here. Improved prices will at least give Canadian farmers the opportunity to compensate for a lower volume and quality production with higher prices for the unsold portion of their crop. Especially higher quality lentils should be marketed with care and per sample this crop year. Peas – Canadian situation Pea harvest was further advanced than lentil harvest going into the rainy period in late August/early September. Nevertheless, per the provincial agencies, about 1.6 million acres (42% of seeded acreage) had not yet been harvested at the time of writing. While we saw some very stressed and shattering pea fields during our trip in early September, the harvest loss is tempered by the higher percentage harvested. Yield estimates by Saskatchewan Agriculture are also closer to StatsCan than for lentils, but are still lower by 0.8 bushels/acre (bu/acre). Overall, we currently estimate a harvest loss of at least 70,000 – 100,000 tonnes of peas (before quality problems). This will bring the 2014 Canadian pea production to at best 3.45 M tonnes, 13% lower than last year. Given Canada has only 309,000 tonnes of carry-in (per StatsCan’s July 31 stocks report), supply will be around 3.75 M tonnes, roughly 10% below last years’ supply.Internationally, Mercantile projects world pea production to fall to about 10.4 M tonnes, approximately 5% lower than last years’ production. One difference to the lentil market is the existence of a wild card in the shape of Russian peas. Russia may have produced as many as 1.7 M tonnes of peas, and due to low feed wheat prices domestically in Russia, there is increased pressure to go to the export market with peas. Those potential exports should be concentrated in the fall period, and presumed trade will continue normally from Russia in spite of political tensions. We think the biggest pressure on the market from Russia likely has already passed by now.World projected usage and traded volume should remain very close to the volume concluded last year. Like for lentils, Canadian exports for the last quarter were quite good at 824,916 tonnes. Forward sales for fall shipments are very good at around 1 M tonnes. India has clearly been the lead buyer for the fall, while China has been much more conservative with forward buying than they were last year. Earlier we had projected a total export volume for 2014/15 of 2.7 M tonnes, almost 80,000 tonnes below last years’ exports. Given the above scenario, Canadian carry-out should fall to fairly low levels of around 150,000 tonnes by the end of this crop year.We do not expect the price effect of the difficult harvest on peas to be as big as in the lentil market going into the fall period. However, exporters may need to replace some previously contracted peas for fall shipments and longer term, the tighter balance sheet should assert itself. If feed quality peas are being produced, China may offer an additional outlet for that quality as they have banned dried distilled grains from entering their country. Marlene Boersch is an operating partner in Mercantile Consulting Venture. More information can be found at www.mercantileventure.com.www.saskpulse.comIf you would like to receive your copy of the Pulse Market Report by email, please contact us at pulse@saskpulse.com. This report is also available at www.saskpulse.com. DISCLAIMER: This publication is provided for informational purposes only and should not be interpreted as providing, without limitation, agricultural, marketing, or business management advice. Saskatchewan Pulse Growers makes no express or implied guarantees or warranties of suitability or accuracy regarding the information contained in this publication. In no event shall Saskatchewan Pulse Growers be held liable for any special, incidental, consequential, direct or indirect injury, damage or loss which may arise from the use of, or any decisions made in reliance on, the information provided. The opinions expressed in this publication are those of the authors thereof and not necessarily those of Saskatchewan Pulse Growers. Publications Mail Agreement No. #40021625. Return undeliverable Canadian addresses to: Saskatchewan Pulse Growers, 207 - 116 Research Drive Saskatoon SK S7N 3R3
Source: Saskatchewan Pulse Growers