November 2015

November 2015

It is easiest to view the current situation in Canadian special crops in 3 distinct markets.   Grower Market, Speculative/Re-seller Market, and Destination Export Markets.    Each of these is trading independently from each other.   While this is not a totally unusual market condition the diversity in outlook and values between these markets is something I have not seen before.    It is easiest to consider the motivations and fears of each group.

GROWER MARKET: As a processor, we are hyper-aware of the stocks remaining with the local producers.    Red Lentils, Green Lentils, and yellow peas are largely sold out at the grower level.   Green peas and Canary are largely available.   Competition for the remaining stocks is intense between exporters to a point that processors are willing to disregard other market signals knowing if they miss an opportunity to buy it will not come around again.    It is also giving an opportunity for larger companies to make an effort to corner markets in lentils and peas.   How effective this strategy will be over the coming 10 months is uncertain.

RE-SELLERS:  In January 2015, the lentil market happily traded between all markets $400 cheaper than today.   Products had been bought at prices over this range of prices and have been shipping vigorously through the fall.   Many people are in various positions of profitability leaving a wide opportunity for market variation depending on a traders need to execute positions in the near term but also secure future positions.   These conditions can lead to some erratic trades within markets.   What is interesting is the general inability of participants to move away from the difficult lentil markets into other specialty crops that are more accessible.   For the moment, everyone wants to stay in the choppy waters.

DESTINATION:   These markets have been generally left behind with the Canadian marketers.   Most destinations are have started importing the early (cheaper) shipments and find themselves competing with others that have done the same.   These markets need to find a level that rations a fundamental Canadian product shortage in their market over a wide range of import prices and competing domestic alternatives.   This takes time.   Many importers are still opting to wait out Canadians even though they do not have their anticipated needs covered.   The confidence that they can buy high and sell higher is diminishing as record prices continue to be reached at our grower levels every week.   The shock that was expected by anti-hoarding policies against Indian importers has also not shook the Canadian grower market despite a dramatic downturn in current prices in a major export market.

Fundamentally, supply and demand will favour growers through the 2016/2017 crop year.   New crop prices for 2016 are already up 40% for lentils and peas compared to where we started pricing the 2015 crop.  It creates a feeling that this situation will carry on for a while, and all markets will eventually have to bend to the will of Canada’s producers.   There is another voice that says destination markets will not be able to sustain paying these higher prices for basic food stuffs and that a market correction is required to shake the bullish sentiment in Canada to a more realistic level.     Eventually, we will find out.   Have a great month.