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.

February 2012

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

“ Farming looks mighty easy when your plow is a pencil and you’re a thousand miles from the corn field.”

Dwight David Eisenhower (American 34th President) 1890-1969

Each year when I begin to contemplate farmers’ seeding intentions, I always remember Eisenhower’s quote above as a reminder of the contrast of the simplicity of writing about something versus the difficulty of actually doing it with cold hard cash on the line. When Agriculture Canada published their first estimates for pulse acres this January and I began to add up all the projected acres, reality set in as to how vile the past two springs have been in parts of Western Canada. Ag Canada is projecting an increase in acres in every crop with the exception of lentils. After two years of seeing 7.5 to 12 million acres sit idle because of flooding and impassable fields, those acres are set to come back into rotations this spring. One only has to look at the current drought maps to realize there is a high probability of this occurring.

Peas are projected to make the biggest comeback this spring with a 27% increase in acres over last year. While new crop bids for both yellow and green peas have been thin, initial estimates are between $7 and $7.50 for both colours. New crop yellows are bid USD$7/bushel (bu) in North Dakota while green peas are bid USD$7.50/bu. With yellow field peas and red spring wheat running at the same levels for

fall delivery, look for higher pea acreage and higher fertilizer prices as we head into spring. If the weather patterns don’t change soon, this will be the first time since 2005 that some farmers will contemplate the lack of moisture before seeding. I expect field peas will be seeded on 3.1 to 3.2 million acres versus Ag Canada’s 2.964 million.

Lentil acres are expected to fall 13.5% this year, the second yearly decline after five years of growth. There were a few new crop red lentils bids during Crop Week in the 18¢/pound range. Laird-type lentils are still bid from 23-25¢ for fall delivery and Eston type lentils are bid 22-24¢. With no incentive to lock in reds at this time, and the probability of carrying over 750,000 tonnes of lentils for three consecutive years, don’t be too surprised if lentils fall below 2 million acres come spring. It is difficult to get too excited dropping more seed in the ground when you are sitting on two or three bins you have not sold from the previous year. If it continues to stay dry into seeding, the dice will roll with crop insurance statistics and return on insur-ance investment rather than current economics. There have been healthy lentil yields to build averages over the past three years and those averages could come into play, for all the wrong reasons. I’ll get to weather later.

Chickpeas acres are forecast to be 8% higher than last year. However, few new crop bids have surfaced and seeding anything for last year’s prices is not a recipe for success. All things being equal, kabuli type chickpeas may have the best returns per acre given last year’s prices, but the risk will turn some acres

away. The largest crop experiment in Saskatchewan’s history is now out of the 10 year average. I have chickpea acres at 150,000-175,000 tonnes this spring.

I am not a meteorologist nor will I profess to be, but I have followed what I consider two of the best agriculture weathermen for the past 10 years – Drew Lerner in Kansas and Elwynn Taylor in Iowa. I now have drought maps going back to 1999/2000 and I don’t want to be a fearmonger, but the 2012 drought maps are starting to look very similar to the 2001/02 maps. The sun has been relatively quiet with regards to sunspots and solar storms since 2002. The last six years have witnessed the least amount of solar activity in more than 100 years, accord-ing to NASA research. That is changing this year and solar activity is expected to peak in 2013. La Nina is now expected to stay well entrenched until at least the end of April. Just as the drought shaped up through the winter of 2001 and into the spring of 2002, it is the dry pattern on the prairies that we have witnessed since August that scares me. As you prepare your seeding plans today for April and May, make sure you have a few Plan B’s loaded on your computers, tablets and scribblers. Not only will the markets be volatile because of world economic uncertainly, volatile weather will exacerbate the situation. This year, just as every other year, it looks much easier on paper than it does in the field. However, this year I am more fearful than others.

Larry Weber is President of Weber Commodities.

2012/13 Seeding Intentions: Rolling the dice again…

Larry Weber Weber Commodities Ltd.

Pea, lentil and chickpea production manuals are

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Rabi 2011/12

Chickpeas: (production down )

As per the latest release from India’s Department of Agriculture, the sown area under chickpeas as of January 20 was down from the last year’s 9.332 million hectares to 8.931 million hectares. The shift in area to peas and wheat can mainly be attributed to decline – there was a significant decline in area in Maharashtra, Karnataka, Andhra Pradesh and Uttar Pradesh.

However, the decline in seeded area in aforesaid states is partly offset by an increase in sown area in Madhya Pradesh, Chhattisgarh, Gujarat and Bihar. The table below shows the chickpea area planted this rabi season.

States Rabi 2010/11 Rabi 2011/12Madhya Pradesh* 3.19 3.16Rajasthan 1.57 1.57Uttar Pradesh 0.84 0.83Maharashtra 1.37 1.02Karnataka 0.97 0.82Andhra Pradesh 0.62 0.58Gujarat** 0.23 0.20Bihar 0.09 0.10Orissa 0.04 0.04Chhattisgarh** 0.32 0.32* area as of Dec. 20th; **area as of Jan. 12th, Unit in million hectares.

Crop conditions: There were no reports of crop damage due to weather and pest/disease and overall the crop is in good shape in all the states. Meanwhile, harvest is about 20-25% complete in the key southern states. Harvesting in other key states like Madhya Pradesh, Rajasthan, and Uttar Pradesh will likely start in March and April.

Further, the trade participants expect that the yield in the southern states is lower due to lower soil moisture during flowering to maturity of the crop. Overall the preliminary trade estimate for the crop shows a marginal decline of 3-5% in production to around 7-7.1million tonnes, versus the previous year’s 7.3-7.5 million tonnes. Expected higher yields in other key states may partly offset the lower yield in southern states.

Peas: (production up)

The sown area under peas this rabi season increased by 13.89% to 0.83 million hectares, compared to 0.73 million hectares last year. Despite unfavourable growing conditions at the time of seeding, farmers cultivated more peas this year motivated by good returns on last year’s produce and expectations of further price increase this year. The main increase in sown area was reported in Uttar Pradesh and Bihar where increases were 18% and 9% to 0.409 and 0.032 million hectares, respectively. The efforts of the state agriculture department in eastern (Bihar) and north-eastern (Assam) states to promote pulses further helped in increasing the sown area. The table below shows the current state of peas planted this rabi season.

States Rabi 2010/11 Rabi 2011/12Uttar Pradesh 0.345 0.409Bihar 0.029 0.032Orissa 0.032 0.029Chhattisgarh 0.046 0.044Madhya Pradesh 0.046 0.044Assam 0.025 0.026 Unit in million hectares.

Crop conditions: Overall the crop is in good shape in all the key growing states with current weather remaining congenial

for further growth of the crop. Meanwhile, the preliminary trade estimates show a 28-33% increase in production to 0.8-0.9 million tonnes, compared to last year, which suggests there is a comfortable domestic supply, with more than 0.45 million tonnes of stocks in the country. The harvest of the crop in the major states will start in March.

Lentils: (production down)

Sown area in lentils this rabi declined in all the key states, and growers diverted to pea cultivation, due to subdued prices for lentils throughout the year.

The total area under lentil crop declined to 0.153 million hectares, against the previous year’s 0.154 million hectares. The major decline is apparent in Uttar Pradesh and Madhya Pradesh, where area declined by 9 and 5% to 0.583 and 0.576 million hectares, respectively, compared to last year. However, the decline in sown area in these two major states is largely offset by an increase in sown area in Assam and Orissa. The table below shows the current state of lentils planted this rabi season.

Trade expects this year’s production will decline to 0.7-0.8 million tonnes and overall the supply in the country will remain tight as the carry-forwards stocks are also estimated lower. Thus, prices are expected to remain stronger in the long term. However, harvest pressure from March onwards may temporarily restrict the gains to some extent. Also lentils (particularly split greens) are used as substitute for pigeon pea (red gram) and production of pigeon pea also declined significantly this year. Prices of the same will also influence the domestic lentil prices. Also lower availability of lentils in the country suggests that the imports will be higher.

Indian Rabi Report

February 2012 Saskatchewan Pulse Growers / Pulse Market Report 2 This report is also available at www.saskpulse.com/producer

Bears & BullsOPINION

Jammu and Kashmir

Himachal PradeshUttaranchal Punjab

Haryana

Rajasthan

Gujarat

Uttar Pradesh

Madhya Pradesh

Maharashtra

Andhra Pradesh

West Bengal

Arunchal Pradesh

AssamSikkim

Orrisa

Bihar

Tamil NaduKerala

Karnataka

Goa

MeghalayaTripura

Mizoram

Nagaland

Manipur

Brian Clancey STAT Publishing

The stocks report coming out in early February has become one of the most anticipated stocks reports in recent years, for a couple reasons. Some people want to see evidence that

farmers have been moving more leftover 2010 lentils into livestock feed markets, while others are looking for evidence last year’s pea crop was bigger than thought.

Statistics Canada’s survey of farmers and the trade is aimed at figuring out how many pulses, grains and oilseeds were on hand as of December 31. It’s debatable how accurate the numbers are, but they do provide us with an idea of how farmers are marketing their crops.

In the case of lentils, it is hard to see how inventory will not be higher than it was a year ago. Even though last year’s crop was smaller, vast quantities of poor-quality product were carried over from 2010. This creates a situation where overall movement is better, but there could still be more lentils on hand. In fact, by the end of July, better movement is expected to result in a 12% drop in ending stocks, to around 660,000 tonnes.

By the end of November, lentil exports were up to more than 81,000 MT more than the August-through-November period last year. Movement was likely slower in December and January than last year, but it looked like Canada was still on pace to export more lentils this marketing year. The quality of lentils being sold in domestic markets as livestock feed also seems to be higher. There is strong anecdotal evidence that farmers have given up hope they can sell all the No. 3 grade lentils grown in 2010 to human consumption markets.

Stronger exports and sales of lentils to livestock feed markets suggest there were around 1.64 million MT of lentils on farms, in commercial facilities, and enroute to port at the end of December. That would be up 170,000 MT from last year, setting a new record high.

By itself, an inventory number around

1.64 million MT will not have a major impact on prices – the tension in markets is not around supply. Instead, markets are more strongly influenced by importers’ willingness to buy and farmers’ willingness to sell.

Many importers are waiting for exchange rates for their local currency to stabilize before buying on more than a hand-to-mouth basis. On the other hand, many farmers do not need to sell lentils to generate cash. More importantly, some are already thinking of marketing last year’s harvest during the 2012/13 marketing year instead of planting lentils. Any change in strategy by either group will have more impact on price than Canada’s winter stocks estimate.

The lower the December 31 stocks number for lentil, the more likely the 2010 harvest will not be a factor in markets. Markets want to see that at least 82,000 MT of 2010 crop lentils have been diverted into livestock feed markets (compared to virtually none in the August-through-December period the previous marketing year).

Interestingly, it may be that more green lentils are being diverted into livestock feed markets than red. As we are dis-

covering, green lentil markets are more sensitive about quality than red. Many green lentil markets will not tolerate any 2010 crop product, whereas a couple of splitters in Turkey specifically ask for No. 3 grade red lentils grown in 2010. They believe that the percentage of edible splits is high enough to make it more profitable than processing No. 2 grade red lentils grown in 2011.

Field pea markets are looking for vastly different indications in the stocks report than lentil markets. After initial complaints that StatsCan overstated last year’s pea crop, people are now convinced the crop was actually under-stated. Concerned parties are hoping to see a high stocks number because it might result in lower prices and make it easier to sell peas.

Assuming Canada only grew 2.12 million MT of peas last year and carried in 535,000 MT, it looks like roughly half the available supply of peas was consumed by markets at the end of December. Inferred usage of peas is down from last year, but the proportion of peas used is up. Today’s high price for peas is just one of several reasons importers are trying to avoid buying. It needs to be stressed that one of the

February 2012 Saskatchewan Pulse Growers / Pulse Market Report 3 This report is also available at www.saskpulse.com/producer

Supply and Demand Estimates for Canadian Lentils in 2011/12Large green Medium green Small green X-Small Red Small Red Other

Acreage 1,070,000 55,000 200,000 185,000 1,050,000 10,000Yield 1,250 1,114 1,241 1,281 1,413 992Production 606,600 27,800 112,600 107,500 672,900 4,500Carry In 181,500 12,900 45,000 58,200 450,400 2,000Supply 788,100 40,700 157,600 165,700 1,123,300 6,500Exports 411,100 21,200 82,300 86,500 586,600 3,300Seed 33,900 1,400 4,800 1,000 27,100 300Feed, Waste and Other 125,600 6,900 24,900 26,800 177,000 1,300Total Usage 570,600 29,500 112,000 114,200 790,700 4,900Ending Stocks 217,500 11,200 45,600 51,500 332,600 1,600Stocks/Use 38% 38% 41% 45% 42% 33%

Supply and Demand Forecast for Canadian Lentils in 2011/12Large green Medium green Small green X-Small Red Small Red Other

Acreage 831,000 45,000 212,000 45,000 855,000 12,000Yield 1,276 1,269 1,326 1,210 1,313 1,029Production 481,100 25,900 127,500 24,700 509,200 5,600Carry In 217,500 11,200 45,600 51,500 332,600 1,600Supply 698,600 37,100 173,100 76,200 841,800 7,200Exports 442,800 24,800 115,900 51,000 588,600 4,800Seed 38,100 1,600 4,900 1,400 37,700 300Feed, Waste and Other 45,800 2,600 12,100 5,400 56,000 200Total Usage 526,700 29,000 132,900 57,800 682,300 5,300Ending Stocks 171,900 8,100 40,200 18,400 159,500 1,900Stocks/Use 33% 28% 30% 32% 23% 36%Source: STAT Publishing

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If you would like to receive your copy of the Pulse Market Report by email, please contact us at pulse@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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Supply and Demand Estimate for Canadian Chickpeas and Field Peas in 2011/12Desi Kabuli Small Kabuli Yellow Green Other

Acreage 4,000 85,000 36,000 1,963,000 330,000 35,000Yield 1,268 1,621 1,592 2,049 1,788 1,480Production 2,300 62,500 26,000 1,824,400 267,700 23,500Carry In 1,400 14,700 5,900 433,000 94,000 8,000Imports 0 6,000 0 4,900 13,700 0Supply 3,700 83,200 31,900 2,262,300 375,400 31,500Exports 2,000 47,300 21,000 1,792,500 297,500 25,000Seed 200 9,100 1,700 192,000 30,000 4,000Feed, Waste and Other 1,000 15,600 3,900 100,800 16,900 500Total Usage 3,200 72,000 26,600 2,085,300 344,400 29,500Ending Stocks 500 11,200 5,300 177,000 31,000 2,000Stocks/Use 16% 16% 20% 8% 9% 7%

Supply and Demand Forecast for Canadian Chickpeas and Field Peas in 2012/13Desi Kabuli Small Kabuli Yellow Green Other

Acreage 5,000 113,000 32,000 2,734,800 425,000 50,200Yield 1,323 1,346 1,309 1,903 1,991 1,814Production 3,000 69,000 19,000 2,360,900 383,800 41,300Carry In 500 11,200 5,300 177,000 31,000 2,000Imports 0 7,000 0 5,200 13,600 0Supply 3,500 87,200 24,300 2,543,100 428,400 43,300Exports 1,500 58,000 15,600 1,936,700 326,300 33,000Seed 100 4,500 900 187,000 46,000 5,000Feed, Waste and Other 1,300 14,700 3,400 198,400 34,100 2,300Total Usage 2,900 77,200 19,900 2,322,100 406,400 40,300Ending Stocks 600 10,000 4,400 221,000 22,000 3,000Stocks/Use 21% 13% 22% 10% 5% 7%Source: STAT Publishing

purposes of high prices is to make buyers think twice before entering markets. This is because there is simply not enough product available to cover all outstanding demand.

Higher average prices seem to have more impact on demand from the Indian subcontinent than other large buyers. In the August-through-November period, shipments to India, Pakistan, and Bangladesh were down around 300,000 MT, while sales to China were up 170,000 MT.

Slowing demand from the Indian sub-continent is the result of several factors, the most important being changes to the mandates of state trading companies. Last year, there was a government mandate to import up to 1.5 million MT of pulses for resale on commercial markets, to help control food price inflation, and another 500,000 MT for distribution to the poor. This year they are only mandated to buy pulses for distribution to the poor. Commercial buyers will not import peas unless they can make money and it is hard to make money when currency exchange rates jump all over the place. The net result is a slowdown in imports.

Overall, China is this season’s “good news” story. Import demand rose because peas are being used in a wider range of value-added products. China’s ingredient buyers are not quite as price sensitive as India’s housewives, and the country is continually devel-oping new products, making it easier for China to import more peas than the previous marketing year. But this increase in demand also makes it

more important for Canada to have a consistent supply of peas with the right quality characteristics.

Given such opportunities, it is not surprising to see people yearn for a magical increase in Canada’s pea supply. Another reason markets would like to see a surprisingly high December 31 number for peas is that it is becoming harder to sustain prices for peas at a time when there is general weakness in grain and oilseed markets. Buyers need the price of peas to fit with the other ingredients. If they don’t, they will look

for ways to defer demand or product development.

The bottom line for peas is that currency fluctuations and the price of competing food ingredients will have more impact on prices going forward than anything StatsCan says in next month’s report. By contrast, lentil markets need to see a signal that the 2010 crop is disappearing.

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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