GARRISON, N.D. - JM Grain started buying contracts for the 2016 pulse crop in November. Normally, the company doesn’t start until early spring.
“Despite the global slowdown, we’re still seeing very strong demand,” said Justin Flaten, who operates the Garrison-based company’s Montana office. “Yellow (pea prices) are crazy high.”
While prices for most crops have sunk to break-even levels or less, the price for pulse crops has remained high with droughts shortening supply. And as farmers try to remain solvent, it has shifted how those crops are bought and sold.
“This year, we contracted a lot of acres,” Flaten said. “Normally, it’s spot basis.”
The 2015 season’s crop sold at high prices and demand on the new season’s crop, in the ground now, has stayed strong. Many farmers decided to lock in a profitable price level given the alternative low returns on wheat.
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Flaten said, because of the shortage, buyers were as anxious to purchase as sellers were to sell.
“I think we’re in transition for the better in terms of contracting and, hopefully, terms of value,” he said of the shift he’s seen in the pulse market.
Kevin Haas, chairman of the North Dakota Dry Pea and Lentil Council, agrees the industry did see the aggressive contracting trend early in the year, as well as increased interest in growing higher-priced pulse crops, but trade has since slowed as buyers and sellers wait to see what happens with the record number of acres planted.
"As harvest approaches, we'll know a lot more," said Haas, which should be by mid-July.
With no futures for peas and lentils, farmers have typically seen them as a higher risk because there’s less transparency in the market, Flaten said. They can’t hedge or haul into the closest elevator and dump their crop.
“Commodities are right on paper in front of them; peas are marketed,” he said.
Other factors come into play because most pulse crops are consumed in their natural state, rather than ground into flour or oil, and their appearance matters. For example, the shade of peas at harvest determines whether they’ll go to China to be sold as a snack food or Kansas City to be added to pet food.
Some of that is changing, Flaten said. The industry has stepped up its marketing of pea flour as a source of protein that is gluten free and free of GMOs, genetically modified organisms whose genes have been altered through breeding to cause traits in the plants that don’t naturally occur. An example would be corn bred to withstand the shorter North Dakota growing season.
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The outcome of a record-planted pulse crop will determine whether the high prices will stick around.
“I know a lot of peas went in the ground this year,” Flaten said. “Canada put in phenomenal amount of acres.”
Estimates in Canada for lentils are between 5 million and 6 million acres, compared to a 3.8 million-acre average, Flaten said: “That’s just crazy.”
Lentil acreage in North Dakota is estimated at 240,000 acres, according to U.S. Department of Agriculture National Agricultural Statistics Service numbers and Montana's is up 50 percent from 260,000 acres in 2015 to 500,000 acres expected this year.
Despite possible records, there is still a lot that needs to fall into place, according to Flaten. Too much rain at harvest could wreck crops, while an oversupply could drive prices down.
In terms of acres, Canada remains the country to watch. But increasing the pulse acreage meant planting lentils in fields where they aren’t usually grown. And the flat heavy clay prominent in Canada could work against them compared to loamy sloped land where the crop is planted in North Dakota, Flaten said.
The ability to ship by rail will be another factor, according to Haas. A couple years ago, shipments of North Dakota crops were greatly delayed. Haas said he waited 60 days in some cases.
"If we can't ship out, the plant can't receive if it's full," he said, which would affect farmers' ability to sell off those crops not under contract.
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A more accurate acreage count is expected by the end of the month.
“By the end of August, we should have a good tone for the year,” Flaten said, but, so far, it is looking good for farmers and buyers, such as JM Grain, alike.
