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Published October 28, 2013, 11:05 AM

Global lentil supply adequate

Lentil prices aren't great.

By: John Duvenaud, Agweek

WINNIPEG, Manitoba — Lentil prices aren’t great. No. 2 Lairds trade about 19 cents per pound delivered, Estons are 18 cents and reds are 18.5 to 19.5 cents. The problem is they are unlikely to improve any time soon. In fact, the seasonal charts suggest that lentil prices generally drop from harvest until into winter and even then, improvements tend to be minor.

Supply is not the problem, especially not for green lentils. Canadian Laird production, and Canada is the world’s major green lentil producer, was down this year. Production was 600,000 metric tons. Supplies are adequate, but far from burdensome.

The big surpluses of feed grade lentils from 2010 got cleaned up in the era of expensive corn so Canadian supplies are generally high grade. That does make trade a lot smoother.

Reds have taken over as the biggest produced Canadian lentil but global production is several times bigger.

Globally, supplies are adequate. While there has been a big drop in Syrian production, most other producers are producing better crops every year, just like most farmers around the world. Turkey had a decent crop and it’s closer to most users. Eastern Europe has become an export competitor and South America and Australia are generally increasing their pulse production.

The problem with lentil markets is with demand. India is the poster child for reduced demand. There is a triple whammy here. India is following the same government subsidization of crops that brought so much market distortion to the western world in the past few decades.

Government-owned stocks have surged. International tenders out of India are now normally for exports of government stocks; almost never for imports. Second, the Indian harvest in September is just over and local pulse stocks are seasonally high. Third, the Indian rupee continues it’s now two-year slide. A year ago, it had fallen hard and was impacting Indian importers’ ability to source product. Now it’s even lower and even harder for an importer to do business.

While India is the worst case for reduced buying, it’s not the only customer with problems. Egypt has serious issues. Several mid-income consuming countries have their own problems. These are big issues with no clear resolution. The size of our traditional markets is taking a hit.

While prices aren’t the best, we did have a great production year and these price levels are probably profitable for most farmers.

Lentil movement to processors, if anything, is a bit behind normal as we get used to wheat being a cash crop.

Canola remains range-bound

Canola prices have traded sideways in the past six weeks. Domestic crusher demand has been supportive at these levels, given the favorable margin structure. Soybean prices have remained relatively strong and canola oil is trading at a discount to soybean oil in the U.S. The canola market has functioned to encourage demand and we now find canola more competitive than soybeans, given the product values. Moving forward, canola needs to maintain this competitive edge over soybeans.

U.S. farmers are in the full swing of soybeans. Soybean yields have come in better than expected but additional Chinese demand has supported the market. It is difficult to say how Chinese buying patterns will materialize in the next couple months, given the lower crush margins in China. South American conditions remain favorable as planting gets underway in Argentina and Brazil.

The market is factoring in a record soybean crop in South America but if average yields don’t materialize, the soybean market will incorporate a risk premium.

Milling wheat continues climb

Minneapolis and Kansas City wheat futures made five-month highs last week.

Argentine wheat prices are near historical highs, given their tight stocks situation.

Given the tight wheat supply in South and Latin America, there has been stronger demand for U.S. hard red winter wheat and Canadian mid- and low-protein spring wheat. U.S. hard red winter fundamentals are historically tight and the Canadian system is running near capacity keeping export prices firm for nearby shipments.

Wheat markets have incorporated a risk premium because of adverse conditions in Ukraine and Russia. The spring wheat harvest in Russia has been delayed because of rain so production estimates have been lowered for the 2013 crop. Winter plantings in Ukraine and parts of Russia have been lagging behind the normal pace so this has caused some concern about the 2014 crop and upcoming export potential.

Argentina’s political situation regarding wheat exports is uncertain, given its upcoming production, so this will continue to be a major influence on North American wheat values. Export competition from Europe and the Black Sea region will subside in the latter half of the crop year because there was a larger export pace in the first half.

Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, either call 1-800-567-5671, e-mail admin@canadagrain.com or visit canadagrain.com.

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