WINNIPEG, Manitoba -- Reds lentils are the hot commodity. The Indian winter crop, by far the world's largest, suffered from a lot of rain right at, or just before, harvest.
Yields were not greatly affected, but 90 percent of Indian red lentils are ground and the flour yield was cut back significantly. Perhaps 25 percent of the Indian crop was lost or downgraded. Consequently, India is in the market for imported reds. The current market, about 22 cents per pound, freight on board farm Saskatchewan, is probably as high as Indian customers will pay, regardless of how tight their supplies are. There are any numbers of pulse products that they will substitute.
Market focus is changing to Turkey, another major lentil producer and a conduit for Canadian lentils going to several areas in the Middle East. April is a critical month for the Turkish crop. If they get good moisture, red prices will likely be steady or maybe a bit softer. If it's dry, the price should trend higher.
There's been good movement on reds all winter, given the mess in rail transportation. Processors have generally been using what capacity is available to move reds, not greens. Not to say there hasn't been any green movement, just that it's taking second place to reds. Lentil processors, with their single containers or a few hoppers, are usually standing in line behind the inland terminals with their 100-car spots.
They're small volume, in the scheme of things. Plus, placement is hugely diverse -- hundreds of locations across western Canada, as compared with volume shippers in Montreal, Toronto and Calgary. Those containers have to be delivered to and from numerous sidings. It's much easier to pick up 140 cars of containers in Toronto and deliver them to Vancouver.
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Processors are paying 22 to 23 cents per pound freight on board on reds and 22.5 to 23.5 cents delivered. Delivery will vary from immediate to July. Viterra is reportedly at 25 cents on reds. Green lentil demand has been steady through the winter, although it has been hard to move them. No. 2 Lairds trade about 17 to 18 cents freight on board with No. 1 Estons at 15.5 to 16 cents delivered. Delivery is probably May or June.
Soybeans supportive for canola
The U.S. Department of Agriculture planting and stocks report was supportive for the oilseed complex. While the stocks number came in as expected, the December through February usage was record large reflecting stronger demand.
Stocks at the end of 2013 to '14 will be down to pipeline levels and the market will be sensitive to weather and growing conditions this summer. U.S. farmers are expected to plant 81.5 million acres of soybeans this year, up 6 percent from 76.5 million in 2013, and this should be sufficient to rebuild stocks but the market cannot afford any problems during the growing season. Strength in the bean complex will continue to support canola prices until the soybean crop is more certain.
For canola, we continue to project a record carryout of 3 million metric tons for 2013 to '14 and a year-over-year increase in Canadian acreage of 7 to 10 percent will keep stocks at burdensome levels. We are expecting the market to incorporate a risk premium during the summer months if adverse weather materializes.
Producer selling usually picks up before road ban season, which will limit the upside in the short term. Rail logistics are improving in Western Canada, improving offshore movement for canola seed and canola products. This will be supportive for basis levels and help alleviate the on-farm backlog.
Wheat and barley summary
U.S. corn fundamentals continue to tighten, which will be supportive for Canadian barley and wheat markets. U.S. corn stocks came in slightly lower than average pre-report estimates, reflecting stronger-than-anticipated domestic feed demand. Corn acres are expected to be down 4 percent compared with 2013, which will result in a year-over-year decline in ending stocks. The report was slightly bullish for the corn market, causing wheat futures to also strengthen. Similar to soybeans, the corn market will be sensitive to weather conditions this summer.
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The barley market, in major feeding regions of Western Canada, has been trading at a large discount to corn, especially for new crop delivery positions. But we project a 7 to 10 percent year-over-year decline in Canadian barley acreage, so longer term, this corn barley spread will narrow. Canadian barley prices will move in line with the corn market.
Winter wheat acreage was projected to be down 3 percent from 2013. This was largely factored into the market, but given the tighter corn supplies, the feed price for wheat (which is the floor) will be increased next year, strengthening all wheat values. Also, the U.S. hard red winter wheat carryout for 2013 to '14 is sharply below the 10-year average. The crop has experienced dryer conditions, so lower overall acres makes the market very sensitive to upcoming weather forecasts. U.S. nondurum spring wheat acres were estimated at 12 million, up 3.4 percent from 2013, which was largely anticipated by traders.
But spring wheat prices in Canada and the U.S. will be led by Kansas hard red winter prices.
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.
