August 2018

August 2018

Some Thoughts about Scarcity and Abundance

In theory, traders should not care if the market is going up or down.   Every bet is equal and every trade equally executable.  Everything is sellable to anyone anywhere as long as the price is right.   Special crop traders know a little differently.   Our trade an exercise in merchandising and logistics and a companies ability to finesse square pegs through round holes.   A successful sale is more likely to be the result of the 4 P’s of marketing and a sound relationship as opposed to the successful execution of a statistical algorithm carefully calibrated to the supply and demand curve.    Cue the collective freak-out when lentil stocks breach 1 million MT and every pulse buyer known to man-kind simultaneously withdraw to their respective corners leaving the industry in serious jeopardy.   

This should not be the case.   A lot of people are hungry.   Pulses remain a fundamental food source for the past 2000 years and should be leading the way to ensure the health and nutrition of every person on the planet.   The global poverty rate is 50%.   By definition, one out of every two people cannot satisfy their basic human needs for food and shelter.   80% of humanity lives on less than $10 per day.   In an era where global food stocks are the highest in decades and commodity prices are the lowest in decades half of the world still remains in a proverbial sea with ‘water everywhere but not a drop to drink.’        

There is an economic principle titled, “Say’s Law” which states supply creates its own demand.    It makes sense.   Farmers with excess supply lower their prices to allow more of the world’s population access to food that previously they could not afford.    A few more people get to eat, and we clean up the excess supply until the richer 50% are once again able to exercise their first right of refusal on world food stocks.  We trust that the market will follow the theory.   We think someone somewhere will take care of it.   If they don’t, then the opportunity never really existed.   Regardless of your moral compass, we can agree it rarely works that way.   Like everyone else, I get up every morning and continue to work within the rules established by global banking / political systems which are designed to keep us dependent on their services.    Unfortunately, the current system we are working tends to bleed away the creativity needed to make the equation true.

Without individuals and companies doing the real work of creating fresh demand, the S+D curve will remain inelastic.   No drop in price is going to generate another sale.    In fact, the lower prices become self-serving to financial and political motives.  Farmers borrow more money to hold stocks, traders create uncertainty (true or not) about the future to simulate purchases, payments slow down and everyone starts to rely more on bank credit.  Processors bait and switch quality, buyers renege on contracts, and trade organizations try and fail to pressure populist governments to open markets.   In the end, it’s like we everyone yelling ‘fire’ but forgetting to leave the house.   

Where is the discussion to tap into a market of 2.25 billion people who are missing a nourishing meal every day?   It is a massive failure of business people and trade organizations to not pursue the potential growth in this market.    

Here is some quick math:    2.25 billion people x 1/4 cup pulses per person x 365 days = + 20 million MT per year.   

Closer to home, 50 million North Americans live without adequate food security.   Using the same calculation requires +450,000 MT per year.  Yet, no one seems to think about how to connect to millions of hungry people within a week’s drive from every farm gate in Saskatchewan.   If we could profitably do it, the demand would erase half the red lentil carry-over and set the industry up for massive future growth.       

One more calculation.  The FAO estimates 815 Million people in the world suffer from chronic undernourishment.   Connecting the pulse market to every undernourished person creates a demand of 20,000 MT per day or 7.3 million MT per year.  All we need is a system to distribute lentils and collect payment of $1 per family a week.

That’s a huge market waiting behind door #2 if someone can find a way to open it.   

Getting to these 2 billion people will require the type of unconventional thinking similar to how Muhammad Yunus and the Grameen Bank profitably used micro-credit in areas where traditional banking failed.    It has been a massive success allowing individuals to build business and improve their lives and communities.    

I concede it would be difficult to pursue these objectives on an individual company level.   However, we have the collective creativity of 150 pulse companies and trade organizations with multi-million dollar budgets.   STEP has a grant of 3.3 million per year.   Saskatchewan Pulse Growers is sitting on 27 million in excess cash.   At this point, do we really need another red lentil variety or rummage up another unreliable buyer in an effort to dilute an already oversaturated import market, or is it time to pursue a system where pulses are the go-to survival food for half the people on the planet?

A huge part of the problem is that we are dealing with a deeply ingrained system and we businesspeople to buy into a new one to move forward.   Not much has changed since 1 million Irish died during the ‘potato famine’ in the 1840’s while the rest of Europe suffered very little.   It is historically accepted that the deaths were largely due to distribution issues, trade imbalances, English law, and the political motivation to maintain inequality during this time.   From The Free Market, April 1998; Volume 16, Number 4.]

Ireland was swept away by the economic forces that emanated from one of the most powerful and aggressive states the world had ever known. It suffered not from a fungus (which English scientists insisted was just excessive dampness) but from conquest, theft, bondage, protectionism, government welfare, public works, and inflation.

Can our sector rise above these market forces that grip our world and grow our industry by bringing food to the most in need?   

Here are a few ideas outside the box to start reaching toward 2 billion new customers:

  • Setting up a system of barter and trade outside traditional banking inside local economies.
  • Develop a system of Micro-credit for local distributors and families in hard to reach markets.
  • Create a system using alternative currencies like Bitcoin and Ethereium on the blockchain to facilitate a new type of trade to areas not supported by traditional trade and distribution.
  • Individually packaged emergency “pulse protein packs” products for North American/international aid markets.
  • Co-market pulses with other important commodities, water, and pots to cook them in.

Of course, if it was easy it would have been done already.   It is much easier to cut prices, blame others,  or dream that a movie producer will bring a Hollywood ending to everyone’s market woes.   Maybe we should also consider the most obvious solution is the best one.   Find a way to get your product to those who need it most.    Simple.   Right?

July 2018

July 2018

Fun with Fibonacci

Fibonacci retracement levels are depicted by taking high and low points on a chart and marking the key Fibonacci ratios of 23.6%, 38.2% and 61.8% horizontally to produce a grid. These horizontal lines are used to identify possible price reversal points.   F1, F2, and F3

Large Green Lentils #2

Support:  $18.50            Resistance  $30.00         F1 = 25.58;   F2 = 24.22;   F3 = 22.86

Current markets are struggling to break through F1,  F2 has provided support for new crop.   A breakthrough 22.50 will signal a new top resistance point in the market setting up for sub 20 grower values.   

Green Peas #2

Support = $7.48        Resistance = $9.75       F1 = $8.88;    F2 = $8.61;    F3 = $8.35 

The long term trend shows Green peas trading in a relatively tight range between $8.50 and $9.00/bu.   The calcuation suggests a price of $8.25 will signal future higher prices.   A break below $8.25 will set up prices around $7.50/bu

 

Canaryseed

Support = 18.50          Resistance = $25             F1 = $22.69            F2 = $21.98        F3= $21.26

Very little canary has moved below $21 for several years with the sweet spot to fill limited demand around $22 and farmer targets around $24.   Fibonacci calculation suggest it will remain difficult to go below $21.

Red Lentils #2

Support = $20        Resistance = $14       F1 = $17.67;    F2 = $16.96;    F3 = $16.26

Reds are moving off the charts in a bad way for farmers due to duties from India not allowing market forces to do their work and absorb excess supplies at lower prices.   We have not broken 16 in a decade.   Even with an estimated resistance value of $14,  the calculation suggests that we are at a bottom of the market and should stay here for a long time.