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.