News, Pulse Beat Individual Articles

Clancey’s Stats: Pulse market analysis

Brian Clancey, Senior Market Analyst and Publisher, STAT Communication – March 2020

Production problems in many net exporting countries have changed the tone of international pulse markets, with prices for many commodities looking like the recent upward trend in prices will be maintained. That could be the case through at least this year’s northern hemisphere harvests.

As was the case with India’s Kharif season crop, farmers in many parts of the world faced significant weather challenges this year.

Unusually dry conditions in Australia have been making headlines because of widespread bush fires. By contrast, farmers in India, Canada, the U.S. and parts of Europe struggled with excess rain during planting.

The resulted seeding delays not only increased the risk of poor weather during harvest, but in general, the later crops are seeded, the lower their yield potential.

That proved to be the case with much of North America’s pulse crop. Dry edible bean yields were, on average, 22% lower than in 2018, chickpeas 7% lower, while pea yields slipped a modest 1%. By contrast, lentil yields for the Canadian and U.S. crops were 21% higher on average than in 2018.

India and the world market

India’s pulse harvests are always controversial. Assertions that the government does not know how many farmers there are in-country compounds the problem, with many market participants believing official crop estimates are overly optimistic.

There is an expectation the second advance estimates for the 2019–20 production cycle will show a massive drop in the Kharif season pulse output from last year. However, the losses in the summer crop could be more than offset by the rabi crop, which should benefit from the late withdrawal of the 2019 monsoon.

Assuming average yields for the rabi crop, total pulse production in India across its 2019–20 production cycle could reach 22.27 million metric tonnes (MT), down from 23.4 million last year. The implication is not only that imports could decline during the 2020 calendar year, but there appears to be no incentive to moderate import policies for pulses.

Though India is no longer a key destination for peas and desi chickpeas, total pulse imports are currently averaging 2.5 million MT per calendar year. This is well below the average of 5.3 million MT imported between 2013 and 2017. Demand should remain muted through the end of 2021, but there is a possibility import needs could start building again by 2022 unless there is continued expansion in that country’s domestic output.

India’s reduced presence on world markets has not resulted in an overall reduction in international trade in all classes of pulses. During the previous five years, global exports averaged just under 17.12 million MT per year. An estimated 16.23 million MT was exported last year and movement could reach 16.92 million MT in 2020.

China and U.S. Trade

A fundamental change has been the trade tensions between China and the U.S. Reduced purchases of U.S. origin soybeans prompted livestock feed manufacturers in the country to look for alternative products, resulting in a surge in demand for field peas.

After averaging around 860,000 MT per year, Canadian exports jumped to 1.89 million during the 2017–18 marketing campaign and 1.79 million last season and are on pace to exceed last season’s totals during its 2019–20 marketing campaign. Shipments to China between August and November topped one million MT, with the product going to feed manufacturers, noodle makers and fractionation plants.

A lot of attention was focussed on the spread of African swine fever in China and the steep reduction in hog numbers in the country. However, it appears most of the decline was borne by small producers, while commercial operations faced fewer issues with the disease.

Unlike large scale, commercial hog operations, small producers do not generally use manufactured feed. As a result, there has not been a significant change in the demand for feed ingredients. That has helped sustain China’s field pea imports, with feed manufacturers taking advantage of the fact peas contribute energy, protein and lysine.

Demand for Lentils in 2020

The overall demand for lentils has also started the North American 2019–20 marketing year on a strong note. Worries about the Kharif crop resulted in increased movement of lentils to India, where some millers used green lentils as a substitute for tur or pigeon pea.

Purchases by resellers in Turkey and the United Arab Emirates are also higher than last year. Much of the product is destined for regional buyers, many of whom find it hard to buy directly from exporters in Canada or the U.S..

Sanctions are a problem for some. Local economic issues are a problem in some countries, while widespread civil unrest and wars have reduced pulse production in many countries in northern Africa and the Middle East. Overall consumption is likely down from 10 to 15 years ago, but underlying import demand remains relatively strong.

Demand fundamentals are being helped by the fact there have been significant problems with crop quality in Canada, the U.S. and parts of Europe. Problems with plant diseases and weathering resulted from a wet growing season that delayed both seeding and harvest operations in many areas.

Exporters do not seem to be having problems buying good-quality products from farmers, though the prices they need to pay have been trending upward since the start of the marketing year. The reason is a lot of pulses were carried over from the 2018–19 marketing year.

In North America, residual stocks of lentils and chickpeas were well above the previous five-year average. At the same time, the average quality of old crop lentils and chickpeas is better than new crop, making it easier for exporters to fulfill sales contracts.

Pea Prices

Quality issues are less evident in peas because the industry is seeing good demand from both animal and human consumption markets. On the other hand, it is becoming more obvious in dry edible bean markets. Prices offered to farmers for most classes are trending upward as processors and exporters work to cover outstanding shipping commitments.

Dry Edible Beans and Pulses in 2020

Dry edible bean markets are being helped by an ongoing fundamental shortage of domestic production in Mexico. Opening season exports from the U.S. to Mexico are up over last year, with processors confident demand will remain relatively stable through the balance of the 2019–20 marketing campaign.

One byproduct of quality issues with the 2019 harvest is that for most pulses, domestic disappearance could be higher than initially expected. Farmers may divert the worst product into domestic livestock feed markets. But, the amount fed to livestock can only be inferred from stocks in all positions estimates because there is no statistical reporting in Canada or the U.S.

Quantities of pulses used by the domestic food industry are also hard to estimate. Usage appears to be growing significantly. There has been a recent expansion in the fractionation capacity based on the market potential for protein from peas and other pulses. However, further development of that sector may be limited by the difficulty in developing demand for starch. Modern facilities are expensive and face significant challenges. The demand for pea fibre and starch is not growing at the same pace as pea protein. There is a belief global demand for pea protein isolates will quadruple by 2025, creating a more significant marketing challenge for starch and fibre.

That seems to be constraining expansion in Canada because it affects return-on-investment calculations and projected profitability. Modern plants easily cost $100 million or more, giving an advantage to global companies that also produce compound feeds. Plant breeders are trying to help by developing varieties with an average 28% protein and some companies are trying to drive farmers to focus on protein by offering premiums.

Fractionation demand is not significant relative to the quantity of pulses produced, but it increases competition for the product from farmers. As competition to buy from farmers increases, the average price paid to farmers also tends to increase, ultimately affecting export asking prices.

Improved demand is expected to result in an overall reduction in residual stocks of pulses before the next harvest. The question is whether farmers will respond by increasing how much they plant this year.

2020 Market Outlook Summary

Though trending upward, the average gross potential income from pulses is not as competitive with other crops as it has been in the past. That could change if farmers continue to see an upward trend in bids through February and March. Most already know how much land they will dedicate to pulses based on crop rotations. Depending on market signals in February and March, the amount of land used and how much of each type of pulse sown will be adjusted.

At the moment, it seems likely land in lentils will be little changed, while farmers could reduce land in peas and Kabuli chickpeas while planting more dry edible beans. Even so, supply and demand outlooks for the 2020–21 marketing campaigns in net exporting countries suggest prices for pulses could resume their upward trend after setting their harvest lows.