Bears & BullsOPINION

The Pulse Market Report is a monthly newsletter featuring market analysis and commentary aimed at helping Saskatchewan pulse producers make the best decisions for their crop production and marketing. Each month, market analysts share their opinions in our

Bears and Bulls column, and Brian Clancey of STAT Publishing shares new perspectives in our On the Market column.

October 2011

Saskatchewan Pulse Growers / Pulse Market ReportThis report is also available at www.saskpulse.com/producer

2011/12 Lentils: Risk Manage Your Profit

“Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.” — Albert Einstein

What a difference a year can make. Last September, green lentil prices appreci-ated 51% and red lentils rose by 16%, mostly because of harvest delays and a cold snap that saw temperatures drop to -7°C on a crop

that was clearly 2–3 weeks behind normal development. This year, when tempera-tures dropped to -8°C on September 14, the lentil crop was mature and well over 90% in the bin. When Statistics Canada released their first production estimates on August 24 — 200,000 metric tonnes (MT) more than the trade’s estimates — prices remained constant. Two weeks later, when Statistics Canada released ending stocks for July 31 at 750,000 MT, prices again remained stable. For the second year, harvest pressure was not evident on prices.

Even though India’s pulse acres have been 9–11% lower than last year’s levels and the country’s pulse production is now forecast at 1.65 million MT less than last year, they are still experiencing a bet-ter than normal monsoon compared to most of the best pulse producing states (as of September 20). Turkey’s lentil crop is 8% smaller than last year, lentil acres in the U.S. are 26% lower than last year because of spring monsoons in North Dakota, and Australia is projected to seed approximately the same amount of acres as last year. There is not an overabun-dance of lentils worldwide, even with Canada’s burdensome ending stock levels.

The Next Two MonthsThis market report aims to give farmers a look at the next two months: how much demand will surface and how much of a farmer’s inventory should be sold. Demand for lentils will remain constant until Australia harvests in October/November/December and then again until India has completed its harvest in early winter. Green lentils should appreciate between now and spring, but red lentils will be difficult to move higher as the market rationalization continues to increase each year. Individual farmers will make the best decisions for their own farms, but should remember that the lentil market can and will turn on a dime and the downside occurs much more quickly than the climb to the top. I believe there is little to no downside risk for prices in the lentil market from a fundamental stand-point; however, global debt and currency conundrums are a red flag and for this reason I would be protecting lentil profits.

There are two issues that farmers need to remember, illustrated by the Einstein quote at the beginning of this article. The first is that the global economy is teeter-ing on a daily basis, due to many factors that can be counted (debt, inflation and unemployment) and many that can-not (politics, potential trade actions and government interference). This begs the question: If you cannot measure it, how can you manage it? Europe’s debt crisis is causing worldwide reverberations as banks hold onto cash with both hands and face reduced lending. Consumers continue to lose confidence as stock markets tumble triple digits on a weekly basis. The world is on the verge of another recession, although no one will readily admit it. How agriculture will be affected will be determined in the near future. Expect agriculture subsidies to be on the chopping block – including ethanol and biodiesel.

The second issue is La Niña. No mat-ter who your favourite forecaster is, they are all in agreement that La Niña will be back with a vengeance in December. For Canada, it will mean colder than normal temperatures during the winter months with a greater amount of spring rainfall, much like last year. In Europe and the Former Soviet Union (FSU), there has already been reduced rainfall due to La Niña and it will become serious by the time seeding begins in 2012. Australia will again benefit from La Niña conditions with above normal rainfall. The drought that the U.S. has experienced in the southern plains will be exacerbated this fall, winter and spring. For these reasons, I would protect lentil profits this fall and closely observe the winter-to-spring phase until we can better predict when La Niña will break. Unlike the economy, this is an event that you can count, measure and manage.

Larry Weber Weber Commodities Ltd.

Larry Weber operates Weber Commodities Ltd.For more information, visit www.webercommodities.com.

Do you have a specific topic/question you’d like to see addressed in our Pulse Market Report or future issues of PulsePoint magazine? Email us your thoughts at dseiferling@saskpulse.com and be entered to win a free admission to Pulse Days 2012.

Source: Weber Commodities and Saskatchewan Agriculture and food

October 2011 Saskatchewan Pulse Growers / Pulse Market Report 2This report is also available at www.saskpulse.com/producer

Bears & BullsOPINION

Marketing Options Growers Have Never Seen BeforeAs part of Alliance Grain Traders’ global operations in

Canada, the United States (U.S.), Turkey, China and Australia, Saskcan Pulse Trad-ing sees marketing-savvy growers in all origins. Canadians in particular are some of the most experienced in market-ing their crops year-round. However, no matter how savvy or experienced, growers still need to be intelligent about the market to make the right decisions.

After the troubling growing year in 2010, growers are looking towards a positive marketing season, with quality products and good quantity coming off at harvest time. This new crop product, coupled with the carryover some may still have in the bin, provides marketing options that many growers have never seen before. As always, working with a grain buyer at your preferred processing company is the key to opening up your pulse marketing options, but grow-ers should always keep some general issues about crop conditions in mind.

LentilsThe overall quality of the 2011 lentil crop has been above average, and it is estimated that more than 75% of the current crop rating in Canada is No. 2 or better. This is a substantial improvement over last year’s crop, when bad growing conditions resulted in only a small percentage of the crop making the top two grades.

On a worldwide scale, growing condi-tions as a whole have been average. However, even average conditions in countries such as India and Turkey produce significant quantities of crops, resulting in an abundance of good-to-average-quality red lentils that are

acceptable for the domestic markets in these countries. This product sits on the marketplace, weighing down prices and making demand for reds sporadic at best. Additionally, while there are markets for lower and variable qual-ity lentils, there is uncertainty about the overall quality of remaining Cana-dian carryover supplies from 2010.

While most of the available carryover of No. 3’s and Extra 3’s has been cleaned out, what’s left is sample grade prod-uct with high frost damage. Processors in destination markets want No. 2’s that were taken off before any rain at harvest last year, as they are process-ing for human consumption markets and need a certain quality product for this. Growers holding sample grade product with frost damage should take advantage of protein feed markets, which will open due to a good harvest of high quality peas, lentils and cereals, diversifying growers’ marketing options.

Sending in samples is a good option, so you know what you have and what you are able to do with it. If feed is the only option remaining, sometimes it is good to take what is available and move on to new products you have coming in from harvest.

Despite less-than-ideal market condi-tions, producers should still see mod-est returns on their red lentil product, although potentially lower than they’ve received in the past few years.

Green lentil growers are looking at good returns today due to high demand and good yield for their product. Demand for No. 1 green lentils is particularly high so growers should be moving them as soon as possible. Get in while the market’s hot — don’t hold out for a few cent premium on a marginal No. 1 and risk losing a grade.

Colour and quality of green lentils are key considerations in determin-ing how much your crop will go for on the market. Samples are always needed so markets can be found to match the product available.

ChickpeasThe chickpea market has been impacted by recent frost conditions in many important growing areas of the prairies. The frost, combined with an already reduced number of acres in Canada, has resulted in a tight supply of undamaged chickpea crops, making an excellent selling market for producers whose crop escaped the mid-September frost. Growers looking to move their dam-aged product need to get a sample to their processor as soon as possible, as capacity for upgrading may be limited. Chickpea production is down in most origins, but options for markets may still be found. Potential increases in produc-tion in some markets like Argentina may affect Canadian growers’ market-ing options early in the new year.

PeasOverall, the quality of the 2011 pea crop has been above average. Growers should expect the trend of good returns to continue, with demand remaining constant due to a reduced supply from previous years.

ConclusionGrowers need to look at their cash flow needs, yield, price, and profitability. After that, they need to weigh the current “up” condition of the market against the risk of a market downturn. You can never go too wrong locking in a good profit now, so consider selling before the market enters a riskier phase. Your grain buyer can help you find the best options for marketing your 2011 pulse crops.

One final note to growers: Remember to check your bins often. It was a hot harvest and you need to make sure you cool your product off in the bin to avoid downgrades caused by oxidization.

Finally, remember: “Emotion is more your enemy than any market will ever be.”

Good luck and good harvest!

Todd Rowan is the Manager of Grain Procurement at Saskcan Pulse Trading.

Todd Rowan, Manager, Grain Procurement Saskcan Pulse Trading

Brian Clancey STAT Publishing

Marketing Conditions Becoming Clearer

There is a lot of disagreement over how many peas and lentils Canada has to market in the coming months, but the picture is much clearer than it was one month ago.

Statistics Canada released its July 31 stocks-in-all-positions report in early September — the official ending stock for the 2010/11 marketing year. The number for peas was higher than expected because Statistics Canada increased the size of last year’s harvest and carry-in by 155,000 and 105,000 metric tonnes (MT), respectively.

If last season’s available supply had not been increased by 260,000 MT, it would be hard to explain why 535,000 MT of peas were carried over. In last month’s Pulse Market Report we said that everything we knew about exports and inventories in the licensed eleva-tor system on July 31 suggested the carryover would be 300,000 MT.

Lentil ending stocks were more disap-pointing than surprising. Any optimism we had that the carryover would be around 500,000 MT stemmed from the belief farmers would sell their sample grade lentils into livestock feed markets. This did not happen. The carryover ended up at 750,000 MT, including 509,000 MT of red and 241,0000 MT of green lentils.

The chickpea ending stocks number was higher than expected at 22,000 MT. This had no impact on markets. Worse, the first killing frost this fall caught most of the chickpea crop still standing in fields. This hurt both yields and quality for several fields in Saskatchewan.

The next big report will be Statistics Canada’s October crop estimate, which will give us a more accurate look at the seeded area for individual crops than

the August crop report did. It will also give a good idea of yields. Statistics Canada surveyed farmers the first week of September. Last year, just over half the peas, less than a third of the lentils, and almost no chickpeas had been harvested by the time of the survey. This year, the pea and lentil harvest was 75% complete by the time the survey was finished but no chickpeas were harvested. Since the pulse harvest was so advanced, farmers had a better idea of actual yields than last year.

Pea and chickpea markets would not mind if Statistics Canada increased its crop estimate from its August report. But lentil markets hope to see a lower number to help offset the big carryover from 2010/11.

If yield estimates from crop report-ers in Saskatchewan are close to the

actual, the lentil crop estimate could be 7% smaller than the 1.6 million MT harvest forecasted by Statistics Canada in August. Some traders would argue the decline should be higher, believing farmers did not plant 2.65 million acres of the crop.

Judging from provincial yield estimates, the pea crop could be 6–7% bigger than August’s 2.16 million MT forecast. There is a small chance the chickpea crop will be down sharply from August’s 54,000 MT forecast but, because noth-ing was harvested at the time of the survey, we likely won’t see significant changes in estimated yields until the fi-nal crop report of the year in December.

When you add the two reports together, you get the supply for all classes of lentils, peas and chickpeas. Current prices make it clear that markets believe

October 2011 Saskatchewan Pulse Growers / Pulse Market Report 3This report is also available at www.saskpulse.com/producer

On the MarketB R IAN CL ANCEY

Supply and Demand Estimate for Chickpeas and Field Peas in 2011/12

Desi Kabuli Small Kabuli

All Chickpeas Yellow Green Other All

PeasAcreage 5,000 65,000 5,000 75,000 1,900,000 355,000 45,000 2,300,000Yield 1,323 1,560 2,161 1,584 2,061 2,159 1,965 2,075Production 3,000 46,000 4,900 53,900 1,776,600 347,600 40,100 2,164,300Carry In 1,400 14,300 6,300 22,000 433,065 94,500 7,435 535,000Supply 0 6,000 0 6,000 8,300 34,900 0 43,200Exports 3,000 38,300 8,700 50,000 1,658,800 356,700 35,500 2,051,000Seed 200 7,500 1,100 8,800 175,000 43,000 5,000 223,000Feed, Waste and Other 1,000 14,700 400 16,100 129,800 27,200 1,500 158,500

Total Usage 4,200 60,500 10,200 74,900 1,963,600 426,900 42,000 2,432,500Ending Stocks 200 5,800 1,000 7,000 254,365 50,100 5,535 310,000Stocks/Use 5% 10% 10% 9% 13% 12% 13% 13%Source: STAT Publishing

Supply and Demand Estimate for Lentils in 2011/12Large green

Medium green

Small green

X-Small Red

Small Red Other All

Acreage 1,100,000 52,000 230,000 88,000 1,170,000 10,000 2,650,000Yield 1,332 1,569 1,395 1,177 1,322 1,036 1,331Production 664,500 37,000 145,500 47,000 701,500 4,700 1,600,200Carry In 180,300 14,000 44,500 46,000 463,000 2,200 750,000Supply 844,800 51,000 190,000 93,000 1,164,500 6,900 2,350,200Exports 429,800 26,000 96,700 47,300 592,900 3,400 1,196,100Seed 36,500 1,500 5,300 1,300 35,600 200 80,400Feed, Waste & Other 100,200 6,000 22,500 11,000 138,200 900 278,700Total Usage 566,500 33,500 124,500 59,500 766,700 4,500 1,555,200Ending Stocks 278,300 17,500 65,500 33,500 397,800 2,400 795,000Stocks/Use 49% 52% 53% 56% 52% 53% 51%

www.saskpulse.comIf you would like to receive your copy of the Pulse Market Report by email, please contact us at lentil@saskpulse.com. This report is also available at www.saskpulse.com/producerDISCLAIMER: This publication is provided for informational purposes only and should not be interpreted as providing, without limitation, agricultural, marketing, or business management advice. Saskatchewan Pulse Growers makes no express or implied guarantees or warranties of suitability or accuracy regarding the information contained in this publication. In no event shall Saskatchewan Pulse Growers be held liable for any special, incidental, consequential, direct or indirect injury, damage or loss which may arise from the use of, or any decisions made in reliance on, the information provided. The opinions expressed in this publication are those of the authors thereof and not necessarily those of Saskatchewan Pulse Growers.

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On the MarketB R IAN CL ANCEY

Canada did not grow enough peas or chickpeas.

The supply problem is most obvious in chickpeas. Bids for kabuli-type chick-peas are at decile 10, which means they keep setting record highs. There is a worldwide shortage of kabuli chickpeas, which won’t be cured until India and Mexico harvest their crops next year. This will keep chickpea prices strong at least until January.

With current prices making it enticing for farmers all over the world to grow chick-peas, there is a real risk that production will be big enough to force prices back to more normal levels in 2012. While Australia’s kabuli chickpea crop may be unchanged from last year, Argentina and India are expected to grow more. This means there is a chance that after January, the best prices paid for kabuli chickpeas will be as planting seed.

The world is also looking at a possible shortage of field peas because of small-er crops in all major exporting countries. In our case, Canada needs to export one million MT less peas in the coming marketing year than it did last sea-son. Export movement in August and September was off to a good start, with

a similar volume of peas being shipped as last year. Strong opening season movement has combined with fears of a global shortage of peas to lift grower bids to their highest levels for this time of year in the history of the crop.

India is still seen as the key to deter-mining how long such prices can be sustained. Last winter’s desi chickpea crop set a record. While that would tend to cool commercial demand for peas, India’s state trading com-panies are mandated to import 500,000 MT of pulses for distribu-tion to the poor, which is helping sustain demand for yellow peas.

Pulse production in India over the coming season could be down. The summer, or kharif season, crop is down around 10%. The government hopes to make that up with the winter, or rabi season crop, but there is a risk farm-ers will still move land out of pulses, suggesting India could end up wishing Canada had grown more peas this year.

The main reason world pulse produc-tion is down this season is farmers could make more money per acre growing other field crops. That is changing. Returns from chickpeas are

unusually high and this is expected to draw land back into that crop. Field peas are so far doing better than their previous three- and five-year average returns per acre, suggesting land in peas will probably rise next spring.

Lentil returns are below their recent averages, relative to other crops, sug-gesting there is a chance acreage will drop again next spring. That is adding support to spot markets. As large as the available supply of lentils is, there is demand for more good quality Extra 3, No. 2 and No. 1 grade lentils than are available. If acreage falls again in 2012, supplies of good quality lentils could be even tighter, making it important for lentil markets to generate more competitive returns versus other crops.

The bottom line for farmers is that prices should remain strong through at least the end of the year, creating an excellent chance to move up to 60% of what was grown at good prices. Wheth-er or not prices fall in the new year will have a lot to do with India’s winter or rabi season crop, and whether farmers in the southern hemisphere are encour-aged to put land back into pulses.

Brian Clancey is the Editor and Publisher of the www.statpub.com market news website and President of STAT Publishing.

He can be reached at editor@statpub.com.

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