April 2017

April 2017 – New Crop Edition.   Traditionally in April, there is a lot of spirited debate on the projected acreage numbers for Canadian Special Crops.   This year is voicing more of a stunned silence from market participants when looking toward the 2017 production potential.     The hesitation is not surprising given the February collapse of the old crop markets and lingering uncertainty about import restrictions on several main import markets for lentils, peas, and canaryseeds.     The memory of quality problems at harvest for Canadian crops is also fresh in the minds of both growers and buyers alike.   Farmers are not likely to risk undervaluing their future crop while buyers have strong fears of overpaying for poor quality products that they may have trouble importing.   

My feeling is despite these polar points of view the market mostly has it right.    Acres for most crops will be down slightly due based on lower price expectations and the need for disease control in rotations.   There is ample moisture to get crops out of the ground and the probability is that yields are going to be better than 2016.   We can’t get a wreck at harvest 3 years in a row, can we?   

Last year we started out pricing similar to the numbers we are discussing today.   Grower bids for Reds in the mid 20’s, Lairds in the Mid 30’s.   If things generally stay the same this is where we should be in September.   With both farmers and importers taking a more wait and see approach there should be a lot of free agents looking to do business off the combine rather than worrying about delivering on production contracts.   This should balance nicely against the demands of buyers who will be willing to pay market prices for increased certainty in quality.    Canary is a bit of a dog today but fundamentally it’s hard to see the situation getting much worse.   A moderate increase in buyer participation should float the canary back up toward the mid 20’s through 2018.   

All of this depends on the weather, though I would argue to a lesser degree than history has revealed.    Seed varieties and production methods have shown a remarkable sophistication in their ability to harvest a decent crop in conditions that would have been a total disaster 1o years ago.     

Looking forward, expect markets to remain defensively priced with growers slow to participate until more clarity arrives in the special crops narrative.   By June 2017 the industry should be in a good position to move forward.   Dn2017

March 2017

 During the last 30 days, the special crop market has swirled with so much change if you went on vacation during February they would not be recognizable on your return.   This indeed is the case for many participants.   With many markets shedding 20% or more of their original values it leaves many to wonder if this is an anomaly or an indication of things to come.    

As usual in special crops,  all market stories are India stories.    This is not news.   When the India’s demand arrives at Canadian ports its tide rises all boats.  Today it has retreated beyond the horizon with a lot of rhetoric that makes it feel to many of us like it will never come back.   

The tide analogy is a good one.   Like the sea, the market is impossible to hold back when it needs to go somewhere.   Humans can try to delay it or divert it, but eventually, they lose to its overarching power.   With today’s market retreating beyond what most people felt possible, every trader outside India is feeling the loss of this market.   The question is how long can Indian demand be held back.

My feeling is that the current situation will remain the status quo until mid-June.   The current circumstances allow the Indian stakeholders to benefit greatly by blocking imports and fostering uncertainty about the future.   High domestic prices due to drought have not benefited farmers or consumers.  North American exporters took full advantage, shipping substandard quality and hoarding at the port to artificially drive up prices when India was most vulnerable.    Indian farmers did not have a crop to benefit from the high prices,  consumers paid a larger percentage of their limited incomes, splitters struggled with high priced, low yielding inputs,  and politicians felt the full effect of the frustration.  

Canada once again struggled with a quality crop in 2016 and shipped this quality into the falling ebb of India’s demand.   It is not surprising that, given the opportunity, that Indian stakeholders would take full advantage to get out of high priced contracts and boost local prices to farmers while maintaining reasonable prices for consumers.   They get the added benefit of deflecting some of the pain felt in Indian over the past 2 years back to Canada.  

This is not the actions of long-term thinking and cannot last.   Fundamentally, the world is continuing to work with-in annual production.  This means there is virtually no carry over from year to year and leaves markets very susceptible to any production problems in any region.   It also means in the short term, negative market moves will be overdone by Canadians looking to minimize losses or capture any remaining market value.   As a result, The bottom is being found very quickly.   People will continue to eat, demand will flow back to Canada and prices will improve (though at a more cautious rate.)   Expect the fumigation block on exports to be resolved when the Indian market once again realizes that it will benefit from cheaper Canadian imports to fill its demand.    

Lentil acres are expected to be down in Canada and even with decent 2017 yields, it will be hard to massively overproduce.   The glory days may be gone for the moment, but I am confident Canadian lentils will continue to return to profitability.