World Market View for Lentils and Peas - PulsePoint
August 17, 2018
What does supply and demand tell us for the future?
By Brian Clancey, STAT Publishing Ltd.
One big question is on the minds of a lot of people. Can we reduce inventories of pulses to levels which do not hurt prices?
Answering that question is difficult because the list of buyers has changed. India will not be an important destination for a long time. The earliest will be the fall of 2019, but that depends on how many pulses are planted in the coming winter or rabi cropping season. Many think we might need to wait until 2020 for India to return as a major buyer.
Changes in world demand patterns could run deeper. The United States (U.S.) is picking trade fights with most of its allies and several other countries. This has resulted in retaliatory duties being levied against a wide range of U.S. products, with agriculture a primary target.
India and the European Union (EU) have targeted pulses. India’s import duty for U.S. origin pulses is 10 per cent higher than for Canada and other countries, while the EU has put a 25 per cent duty on kidney and white beans. The European decision has created significant opportunities for Canada’s bean industry, while U.S. exporters did not expect to sell much product to India, with the result its increase in import duties has no effect on markets.
What is changing, are trade patterns. So far the impact is only obvious in products like soybeans and cotton. If what looks like a trade war results in economic nationalism in China, Europe, South Korea, or Japan, other products could be affected. If angry canners or packagers try to replace U.S. product with pulses from other countries, Canada could see unexpected shifts in demand.
There is no reason to think this is already happening but there is no reason to believe it could not.
For Canadian pulses, the question is whether the changing world trade environment will result in enough new demand to reduce stocks to manageable levels?
One thing that helps is that pulse prices have returned to a more normal relationship to grains and oilseeds. When you convert prices to an index you discover pulses were at a premium to grains and oilseeds from the end of 2015 to the beginning of 2017. With the index returning to a discount, we are seeing unexpected demand.
The most obvious example is China. Prices for peas reached levels that made them attractive to feed manufacturers at the same time as China threatened to impose import duties on U.S. soybeans, sorghum, and corn.
Enough peas have been sold to China’s feed industry since January that this summer’s ending stock projections have dropped from over 1 million (M) tonnes to around 700,000.
As long as peas fit in their least-cost formulas, China’s feed mills should keep buying. Noodle makers and fractionation plants in China are expected to buy around 900,000 tonnes in the coming marketing year. If the feed industry bought 1 M tonnes, next summer’s ending stocks would be lower than this summer’s.
Under all scenarios, if demand develops as expected, prices should set their season lows early. Farmers should be selling into demand all year round. Not just export markets, but because more pea fractionation plants are now on stream in Canada and elsewhere.
As bright as things look for peas, lentils could continue to struggle. This year’s crop needs to be smaller than all possible scenarios and next year’s seeded area needs to drop before stocks will get back to levels which do not have an impact on prices.
As we know, demand can change before our eyes. Farmers in India could drastically reduce land in pulses in favour of other crops, forcing the country to import green lentils this fall and red lentils next year.
The fact that India’s import duty on U.S. origin lentils and chickpeas is 10 per cent higher than for any other country could benefit Canada. It is harder for Canada to sell directly to India than it is for other countries. That just means that Canadian lentils could flow through Turkey or another country where they can be fumigated with methyl bromide. This is how Black Sea exporters get around the problem.
The implication is that if the demand is there, Canadian red lentils will meet it, even in countries where selling direct is difficult or impossible.
This year’s red lentil crop is down a lot from last year, but there is a risk green lentil production is up more than people think. Even here, demand patterns are changing. South American purchases of pulses are rising because of migration. Tens of thousands of people are fleeing Venezuela, and bringing their food habits with them. One pulse packager in Chile said he used to need one truck load a month. Now he needs five and expects that to increase. This benefits green lentils and dry edible beans. The growth is not expected to be big enough to prevent stocks from remaining high until at least the 2019/20 marketing year.
Canadian chickpea growers also face more uncertainty in the coming year. Global production of medium and small calibre Kabuli-type chickpeas is up over last year, but prices continue to be supported by tight stocks of large calibre chickpeas. That, in turn, could sustain production in India and Mexico, which would keep world inventories high relative to underlying demand, through at least the first half of 2019.
A lot of the growth in chickpea production is tied to rising domestic consumption. However, there is no good data on how much hummus is manufactured and consumed each year and it is impossible to know if it is a fad or a long-term change in fundamental demand. Several years ago, black bean consumption jumped in the U.S. because of the popularity of Mexican food. That changed as people tried something else.
For growers, these differences between the sources of demand in peas, lentils, chickpeas, or faba beans are critical. Of the four, peas will should see continued growth in demand in the food manufacturing sector because they are the least expensive source of protein, starch, and fibre isolates. The others are more dependent on specialized products and direct consumption in meals. In the feed sector, faba beans and peas are also preferred.
The implication is peas will see more consistent demand in the coming months, but it will be important to take advantage of chances to sell lentils or chickpeas. Grower selling does have an impact on price. Avoiding chances to sell can result in short-term increases, but if the amount of lentils or chickpeas on hand drops too slowly, it could hurt prices after the fall shipping period.