Sleeping through the Static

June 25, Victoria.    Today’s seeding report arrived and departed today without turning too many heads.   Here is a quick breakdown for those of you who missed it:

Laird Lentils:  820,000 acres, down 31 % from last year.   More importantly, the carryover that has plagued the market for the last few years has finally been cleaned up.   Unfortunately, export markets have not been successful in holding onto price gains.  This has left the market in a fairly steady state.   Eventually lower supply will win out.   Expect prices to gradually rise through 2014.

Red Lentils:  1,200,000 acres, up 30 % from last year.   With virtually zero carryover from 2012 and limited competition from other producing countries, I expect reds to stay strong though 2014.   It will be a tough market to get in and out of.   Crop could easily sell out again in 2014.

Green Peas:  455,000 acres, up 13.5 % from 2012.    Green Peas have been sold out for months.    Though new crop prices have stabilized, look out if we see quality problems (bleaching) at harvest time.   We will be back at record levels.

Yellow Peas:  2,625,000 acres, down 10% from 2012.   Limited Carryover.   Growers have shown their disappointment in financial returns from Yellow Peas in previous years.   The lower acres should provide support for gradually rising prices through 2014.

Canary:  165,000 acres, down 45% from 2012.    While there remains some canary in the pipeline, prices are going to have to increase to reduce demand proportionally to supply.   $1200 canary anyone?   Mexican demand may have something to say about that.

Turbulent weather and currency markets are doing their best to offset each other.   It will be difficult to see anyone take strong positions given the lack of carry-out stocks, weak buying markets, and uncertain yields due to messy weather around the world.    For now, better to wait and see what the coming months bring.

Have a Great Week!

Super Growers and Super Varieties

I have been around this industry for a while.   A common theme (besides weather and transport problems) is the inability of the “bean counters” to keep up with the agility of the lentil growers to adjust their acreages.    It is unfortunate, because unlike weather and transport we should have some control over forecasting how many red and green lentils we expect to produce in a given year.     Continually speculating 2 million lentil acres really does not add a lot of charm to weary buyers and traders looking to hang their hat on real data.

I concede that the statistics agencies have tried to make some progress over the past few years, yet we still far way short of giving red lentils their own commodity category.    By the time we get around to separating red and green lentils, growers will have already added a new dynamic to our industry.   Something I am  calling Super Growers and Super Varieties or more plainly described as growers who dedicate over 5000 acres to a lentil variety and varieties that yield over 40/bu per acre.

In the old days (early 2000’s) a big lentil grower would grow 2000 acres and produce 20/bu per acre.    This grower would produce 1000 mt of lentils (25 truckloads) to market through a given year.    Back in 2000, when acres were similar to what we expect in 2013 (about 1.7 million acres) it would take about 850 good size growers to produce this acreage.   Red and green lentils yielded similar numbers.  With similar costing and acreages between red and green lentils the economic patterns from generated from lentils followed principles of supply and demand.

Green Lentils have not changed much.   They don’t hold their colour well, they don’t have large enough markets for bulk vessels, new varieties have not been able to produce more while holding size and colour.   Those 700,000 acres of greens planted this year will still require participation by over 350 individual growers.   Expected production will be similar to what we saw over a decade ago.

In contrast, red lentils have changed a lot.   It is not unusual to see 10,000 acres committed to red lentils by an individual farmer in a given year.   It is not unusual to see over 50 bu per acre yields from new varieties, 250 truckloads.    This super producer with a super variety of reds has increased his supply power by 10 times compared to a decade ago.   This would not matter if acres increased proportionally.   To produce the 1/2 million mt of red lentils like we did in 2000 could be accomplished by 73 growers in the above example.        There are 154 licensed grain companies listed on the grainscanada website.

Combined with the strong financials of Canadian farmers, traders and end users need to respect the leverage available to a smaller number of growers to distort prices above what would be expected from supply and demand curves seen a decade ago.    Maybe it is time to accept the new economy created by these super growers and varieties.

Have a great week.    Dave