Drought like conditions in key growing areas has had an impact on the quantity of pulses produced in North America this year. Current official forecasts are looking for output to drop 21% to 9.73 million metric tons while seeded area was down just 8% at 13.44 million acres.
However, some market participants believe production is much higher because pulses are generally more drought hardy than oilseeds or cereal grains. This is reflected in yield estimates by provincial agriculture departments, which are mostly higher than Statistics Canada's initial reports. In the United States, anecdotal reports suggest the USDA was also too pessimistic about the impact of the drought on yields. Bigger than initially expected crops are a potential problem for field pea and lentil markets because of reduced demand from the Indian subcontinent and increased competition from other origins.
Opening season movement of red lentils and yellow peas was relatively strong as exporters from Canada tried to load vessels for India before the end of September. On September 30, Canada's exemption from penalties for failing to fumigate cargoes at load port with methyl bromide ended. Movement from other countries, however, has been strong because of fear India's government will bring back import duties for peas, lentils and chickpeas or impose some kind of quota on the quantities which can be imported. Other than the actions taken earlier with pulses which are not shipped from North America, there is no concrete indication either event will happen.
It is important to note that cargoes can be shipped to India and fumigated with methyl bromide on arrival. However, since September 30, if the cargo is not fumigated in Canada, importers are fined for having non-compliant phyto-sanitary certificates. Interestingly, the same rule will not apply to other countries (USA, France) until after December 31. That gives them a short term competitive advantage.
The bigger issue is not the fumigation exemption or the risk of import duties or quotas. It is the fact that India is not short of pulses relative to the dietary needs of the population. Land in all categories of pulses was higher than expected this summer which suggests the decline in the coming Rabi season area will be smaller than initially expected. The implication is that demand from India could remain smaller than normal well into 2018. Short term import needs are not helped by the government's decision to sell some of 1.8 million metric ton buffer stock it accumulated during the previous fiscal year. It will sell 550,000 MT of the total, 350,000 MT will be sold to state governments in Karnataka, Gujarat, Tamil Nadu, Andhra Pradesh and Telangana. The balance will go to central welfare schemes such as the midday meal program. Another 200,000 MT has already been sold via auction to the private sector, with the government planning to auction another 200,000 MT.
Though prices being paid to Canadian growers remain relatively strong, the gross income potential of lentils and peas relative to grains and oilseeds is currently below their recent three year averages. The implication is that if grower bids trend lower through March, there is a 65% chance land in field peas will decline next spring and an 80% chance fewer lentils will be planted. On the other hand, chickpea values are expected to remain firm through at least February or March, which could result in a further increase in seeded area in Canada and the United States.
Disclaimer: The opinions or views expressed in this publication are those of the authors or quoted persons. They do not purport to reflect the opinions or views of the Global Pulse Confederation or its members.
