May 2016

Some comments on the April 21 seeding intention report.

First number is acres, second number is the % expected to be carried out from the 2016 new crop.
Commodity                           Last Estimate                   Published today               Current Grower Bids
Large Green Lentils:           1,030,000 (14%)              1,056,000 (11.9%)           O/C 75 cents N/C 43 cents
Small Green Lentils            313,000 (29.3%)              324,000 (15.9%)              O/C 62 cents N/C 38 cents
Red Lentils                           3,586,000 (17.9%)           3,692,000 (16.2%)          O/C 54 cents N/C 36 cents
Green Peas                           548,800 (29.3%)              582,000 (31.3%)              O/C 10 bushel N/C 9.50 bushel
Yel Peas                                 3,429,900 (11.5%)           3,642,100 (14.3%)           O/C 13 bushel N/C 9.50 bushel
Chickpeas                             132,000 (3.7%)                 112,000 (0%)                   O/C 50 cents N/C 40 cents
Canary                                   315,000 (18.1%)               315,000 (16.2%)              O/C 25 cents N/C 25 cents

You can see there is no dramatic change from previous expectations. The government is forecasting acres to be slightly higher, and demand to be slightly more than previously expected.  Some rain is expected for the drier regions next week. Farmers will also start seeding next week as conditions allow.

The main factor (as always) will be India. There are reports that their current pulse stocks will last less than 3 months. Shelves will be completely empty when Canada harvests in August and it will take several months to re-fill the pipeline. Good News for big red lentils and yellow peas. Also, Iran is now able to directly influence the large green market as their sanctions are removed. 2015 crop carryout will be virtually zero for most commodities.

Take-away:
As of this moment, conditions are looking steady through November 2016. The market has been pricing in a good sized crop from Canada, and the current report does not change that. Through 2016, price shocks to the market will tend to be to the up-side if poor growing conditions occur. Otherwise, prices should drift around current levels. There are rumours about some short positions in the market, but my feeling is that the risk to sell short is more to fill additional processing capacity rather than counting on a big win from grower prices crashing. The main reason for this is: Companies will have to compete hard for new grower product. Most growers have 25% of their expected pulse production contracted into markets with strong initial demand with zero carry-in stocks. Forecasted carry-out percentages for the 2016 crop are not burdensome. Even with good yields, growers will remain in control of marketing in the foreseeable future, It will take several months after harvest before growers significantly change pricing expectations. Slow and steady should remain a good strategy.

 

April 2016

April 2016

I feel like I need a cliche as a jumping off point for this post but I can’t find an easy segue leading into a discussion of the 2016 seeding.   Canada will plant a lot.   It looks like India will need a lot.    A bunch of people will mess around in the market until September gambling on yields and currencies hoping for a winner.   It is really not possible to take a sober view to the purposeful decision of going long or short in commodities, but I will try anyway.

Red Lentils 2016 – Go Short.  Growers will get an early start seeding nearly 4 million acres into decent conditions.   They have sold about 1/3 their crop at good levels (mid 30’s) – Good potential to pick up 3-5 dollars cwt when the pipeline is full and growers still have 2/3 their bins full at profitable levels.   When they stop seeing the upside they should sell hard.

Green Peas 2016 – Go Long.   Yes, there will be substantial carry, but they are still trading at at $2 dollar discount to yellow peas in September and will remain the cheapest pulse in the rotation.  There is lots of upside and virtually no downside.

Yellow Peas 2016 – Neutral – Huge acres and huge demand will be handled by the line companies.   Could provide for some good farm level numbers to fill vessels, but it will unlikely have these values translate overseas to make a good short sale.   However, current high prices (around 11/bushel) provide little upside.   Stay away.

Laird Lentils 2016 – Go Long – Prices are still trading in the low 40’s for a reason.   Reds are providing a good psychological foundation.  It is hard to see a situation where lards trade at a discount.   With bins empty and growers seeing prices at 75+ cents this year.   40 cents is a already at a 50% discount to current crop.   Without any world competition it will not be easy to pry good quality lentils from growers hands.   Everyone can see any trouble in production / harvest can provide 20+ cents, with downside limited to a few cents.

Canary 2016 – neutral – I don’t like canary, but it is difficult to see a situation where we go below current 25 cent levels.  We will have more canary available to market next year,  but the overall market dynamic suggests that we will stay steady with limited ability to make much movement in the market.

Have fun.  See you in May.