Lentils strugglingMost lentil fields look fine. They’re lush and green and still growing. Stalks are tall. And that’s a problem. Lentils should be setting pods and forming seeds in early August. This year, weather has been cool and wet. Rains every second day are not uncommon.
By: John Duvenaud, Agweek
WINNIPEG, Manitoba — Most lentil fields look fine. They’re lush and green and still growing. Stalks are tall. And that’s a problem. Lentils should be setting pods and forming seeds in early August. This year, weather has been cool and wet. Rains every second day are not uncommon.
Reports from across southern Saskatchewan are the worst.
The crop is not yet a write-off. Weather could still turn hot and wet and we could have a cracker-jack crop. But right now, odds are this will be a low-yielding crop. In addition, if the weather does stay cool and wet, quality could be a big issue this year, especially with greens.
That said, there are still many good lentil fields that have podded. Some farmers will be desiccating and harvesting soon after.
Lentils have been in a bear market for five years for reds, and mainly flat, or mildly bearish for greens. Canadian supplies have been working their way lower since 2010.
The miracle with lentil prices is how well they have held up in the face of slumping Indian demand. India has had three years of good monsoon rains and good crops and is subsidizing wheat exports. The country’s pulse production has also been above normal. The result is that India has dropped its lentil imports drastically. A further complication of Indian buyers is that the rupee continues to freefall. All imports, specifically including Canadian lentils, are sharply more expensive.
The 2013 Canadian lentil crop, at the start of August, looked like it might produce about 500,000 metric tons of Lairds, 70,000 metric tons of Richleas and 160,000 metric tons of Estons, along with 700,000 metric tons of reds. The carry-in will be about 300,000 metric tons, two-thirds of which are Lairds.
There is no shortage of lentils of any type. International buyers are sitting back at the moment, looking at the developing crop which, until recently, was looking good. It’ll probably still be a decent crop, but it is definitely getting smaller.
Lentil prices are not especially attractive — Lairds and Estons are around 20 cents and reds are 21 to 22 cents, but farmer sales are steady.
It is unlikely that lentil prices will drop much from current levels. Canada is a major exporter and the problems with the Canadian crop mean global supplies will remain on the tight side. Indian demand will probably stay weak for another year.
The most likely long term for lentils has prices staying at about current levels through the year, Canadian plantings dropping in 2014 and a bull market developing in fall of 2014.
New crop canola
Traders and analysts are getting a better handle on the Canadian crop size and estimates now range from 15.5 million to 16 million metric tons, which will be a record crop. Early in July, crop estimates were ranging from 14.6 million to 15 million metric tons so the market is adjusting to the new fundamental structure.
Basis levels are expected to deteriorate during the harvest period as producer deliveries surge. At the same time, the futures market continues in a downward trend and there is potential for further downside longer term.
The weather forecasts look favorable for Western Canada and the major U.S. soybean-producing areas. While we were looking for a bounce in the first half of August, there is little risk that adverse weather will lower crop prospects.
Domestic canola crushers are having a difficult time selling the oil and meal, given the increase in U.S. soybean production and lower world vegetable oil prices. Basis levels have weakened and have potential to deteriorate further based on oil and meal values. Major exporters have covered the bulk of their September through November requirements, so fresh buying interest will be limited.
The current risks in the market suggest weaker prices longer term.
New crop durum
The durum market has received spillover pressure from milling wheat and coarse grains, but prices are still relatively strong for new crop from a historical perspective. In the past month, there has been a fair amount of business to North Africa and the U.S., based on current prices in the elevator system.
Therefore, we now find that the bulk of demand for September through December is covered. When grain companies have filled these sales commitments, the durum market will drop lower.
The durum market is unique from other grains. After there is a surge of export business, the world market can go 45 to 60 days without any major trades, which causes the grain companies to incorporate a risk discount when buying from the farmer. During the past three years, the highest durum market of the crop year has occurred in the fall period. Keep in mind during 2013 and 2014, we are in bearish grain markets.
The U.S. will have a smaller crop, but the world fundamentals will not change because of larger production in Canada, Europe and North Africa.
John Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, call 1-800-567-5671, email firstname.lastname@example.org or visit http://canadagrain.com.