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Published August 19, 2013, 10:16 AM

Lentl markets on life support

In this week's Wild Oats column: updates on lentils, canola and barley

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Lentil harvest is still three weeks away, so for the moment, we can ignore the sorry state of international markets. These have been on a downward spiral since about May. In April, at CICILS — the world pulse conference in Singapore — the messages were generally bullish.

Stocks were not onerous and Asian demand was like feeding a billion teenage boys.

International traders went home feeling universally bullish and orders poured into Canadian exporters.

A funny thing happened while these abnormally large lentil shipments were en route. The Indian winter crop came off gangbusters, which lowered the importers’ ability to resell. Second, the Indian rupee took another leg down. In short order, importers found themselves behind the eight-ball on their landed cost and, even worse, also found they couldn’t resell in any case.

Some of the bigger importers sucked it up and took delivery of their orders, but many others simply weren’t able to do so.

Most of us will never meet these players, but safe to say that any new aspiring entrant to the lentil importing business in India has had a hard debut. Those that broke a contract will have a hard time taking a second kick at the importing cat. That is a long-term negative to international lentil trade.

International lentil trade has been a mess through the summer. Canadian processors — give them credit — honored contracts with farmers, but Canadian exporters have been frantically reselling shipments already on the water. Most of the reneged product eventually turned up in Algeria or the Mideast, but it all had to find a new buyer. By now, most will have found a home. That said, few Canadian exporters are active in making new crop sales. They’re still licking their wounds.

Ag Canada has the carryout at the end of July at 300,000 metric tons. That, at least, is only about half of the carry of a couple of years ago, but you don’t want to be one of the farmers trying to move that old crop now. You’ll be lucky to get 17, 18 or 19 cents per pound for Lairds, Estons and reds. No 2 Lairds are bid at 18 to 18 1/2 cents per pound freight on board farm.

AgCanada projects the crop size at 1,225,000 metric tons, already the smallest crop in years and calculated before the podding issue became apparent.

Lentils remain one of the cheapest healthy foods in the world and demand just keeps growing. Prices are still within the normal range, albeit at the low end.

The Canadian lentil trade, however, has taken a good hit and it may take until later in the fall for markets to normalize.

Canola prices consolidate

The canola market has dropped nearly $100 per metric ton from the highs earlier in spring; the market will correct in price with a temporary rally or the market will correct over time by trading sideways for a week or two. But the overall trend remains lower and canola crop prospects remain favorable moving forward. We project a 16 million metric ton Canadian canola crop, up from 13.3 million in 2012.

Canola deliveries into the elevator system will surge during harvest and you need to book delivery space before the system gets plugged.

The November-January futures spread has been widening, which is a bearish signal.

Canada has not shipped canola meal to China since November. China is requiring Canadian plants to have a special certification before shipments resume, but we don’t know when shipments will resume. Most canola meal is now moving into the U.S., competing with soybean meal.

Canola oil prices remain under pressure. Earlier in spring, canola oil was trading at a sharp premium to soybean oil, but we now find canola oil trading at a similar price. These factors have set a negative tone for domestic crush margins resulting in weaker basis levels in the country system.

Barley trends lower

Cash barley values in Southern Alberta traded at $235 per metric ton delivered feedlot the week ending Aug. 3, down $19 from a week earlier. U.S. corn is being offered into Lethbridge area feedlots at $235 for October, which is keeping a lid on domestic feedgrain prices. There is also corn from Manitoba and Saskatchewan offered into Lethbridge in the range of $230 to $235. Feedgrain supplies will be burdensome during harvest.

The Canadian barley crop is expected to finish in the range of 9 million to 9.3 million metric tons, up from the 2012 crop size of 8.1 million last year. We expect Lethbridge barley to drop under $200 per metric ton later in fall.

Elevator bids in central Saskatchewan need to drop by $30 to $40 per metric ton to encourage exports.

Current feed barley bids in Western Canada have kept malt barley prices firm. Given the current crop size, malt barley production has potential to exceed domestic and export requirements. At this time, we need to see malt barley bids drop by $30 per metric ton to be competitive on the world market.

Editor's Note: Duvenaud publishes the Wild Oats Grain Market Advisory. For a free copy, call 800-567-5671.