WINNIPEG, Manitoba -- The 2014 prairie lentil crop is substandard and will present lots of marketing problems. Most lentils have gotten rain. Downgrading has already occurred. Wrinkling is a huge issue for traders. It could take two years to get this crop through the handling system.
Wrinkling will be the first thing buyers will be looking at. It's not even a grading factor, according to the Canadian Grain Commission, but the reality is that high- quality end users, in general, do not want wrinkling. That goes both for whole lentil markets and splitting markets.
Quality is already an issue with lentils, even without the wrinkling issue. The bulk of prairie green lentils are already 3, X3 or feed. Reds have a bit more leeway than greens, but wrinkling still cuts the yield on split reds. There have been some No. 1 Lairds combined and more No. 2s.
Processors are not especially enjoying this crop. High quality is easier to handle. There was no indication back in July that it would be a rainy harvest. A few processors will have forward contracted sales of No. 1s and No. 2s with their regular buyers. They might be reaching to source that quality now, perhaps hard.
Because of oxidation, there will be few No. 1 greens in storage, but even the No. 2s have serious value. Don't expect green lentils to go to the moon. These are lentils, after all, just an edible protein. There are lots of edible proteins in the world, and most consumers will move between them with a price incentive.
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Prices have probably made the biggest portion of their move.
Typically, when lentil markets move to a new range, there is a fairly quick 11- or 12- cent move, then prices stabilize. The major part of that move is behind us. No. 1 Lairds, average price delivered Saskatchewan elevators, two weeks ago, was 30.3 cents. Three weeks ago, they were 22.8 cents. Buyers today are paying 30 to 32 cents.
There aren't a lot of No. 1 Lairds trading, but a base price is 30 cents per pound.
No. 2 Lairds are quoted at 24 to 31 cents. X3 will be 18 cents. No. 3s are 15 cents. To get a No. 2, there should be no wrinkling. Estons are about in line with a good No. 1 at 28 cents. A No. 2 red with no wrinkling will trade at 30 cents.
Feed lentils will bring 8 to 9 cents, if you can find a bid.
Soybeans
The oilseed complex continues to digest the large U.S. soybean crop, now estimated at 3.9 billion bushels. End stocks will be extremely burdensome at 475 million. Favorable weather is forecast for soybean growing regions. A larger domestic crush pace will continue to pressure vegetable oil and meal values.
Don't expect this recent weather pattern in Western Canada to hurt canola yields or production. If the market does experience a rally, use it to catch up to our sales recommendation of 40 percent sold. Only expect canola to divorce from the burden- some soybeans in the latter half of the crop year. In the short term, harvest pressure and deteriorating crush margins will weigh on canola prices. Canola futures remain in a downward trend, and there is no signal that this pattern has come to an end.
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We continue to see large deliveries of old crop. It usually takes about three months into the new-crop year to absorb the old-crop supply and harvest pressure. Nearby stocks of canola are not tight enough to warrant a major change in price direction.
Feed wheat
Adverse weather in the past couple weeks has ensured a supply of feed wheat, especially in Alberta and parts of Saskatchewan. Lethbridge feedlots are buying feed wheat near $165 per metric ton delivered, while many elevators are not posting bids for low-quality wheat. The problem is that there is limited offshore movement planned in the first half of the crop year for feed quality wheat.
The feed wheat market has significant downside risk in the first half of the crop year. U.S. corn continues to trade into Southern Alberta, while the barley market is also under pressure.
Western Canadian feed grain demand increases by 35 percent from September to January as more cattle move into feedlots.
Durum
The durum market has experienced a significant rally in the past month. Stronger export demand, along with lower anticipated production, has enhanced values for milling-quality durum. Canadian durum exports during August were 575,000 metric tons, and we expect a similar program for September and October.
The old crop is now basically sold out and the market is moving higher to attract farmer selling. Sell into this demand.
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Our strategy is to sell the bulk of the 2014 crop before the Thunder Bay, Ontario, freeze up. Most of the demand is satisfied with east coast movement and when Thunder Bay closes, prices in the elevator system will soften.
Next April, we see the start of the Mexican and North African harvests followed by the Mediterranean in May through June.
Editor's note: Duvenaud is the publisher of the Wild Oats Grain Market Advisory. For a sample issue, call 1-800-567-5671 in Western Canada and North Dakota, 204-942-1459 for all others, or e-mail admin@canadagrain.com or visit canadagrain.com.
