Facing the challenges/
Agrocorp’s Mostyn Gregg on the 20-21 season and his predictions for next year

We caught up with Gregg to analyze the challenges of the market in which he trades. Manager for Canada and Australia, it’s clear that the present context is as defiant as always but recent changes have significantly shaken things up, for the first time in decades. 

What’s the difference between trading pulses and other food products?

A wheat trader looks to the future, so they can wake up in the morning and someone that does their job in Canada or America or Europe has already traded something similar and that information gives them some idea of what to do. In pulses, however, we are the market makers and people are constantly asking for a price. Does this happen at 2 o’clock in the morning? Sometimes! It is an interesting business. It's more interesting when you are making the market rather than being a follower.

How would you describe this last season compared to previous ones?

This year has been amazing. Horrible, but amazing. Trading is all about timing. Let me refer to a quote from the CEO Soren Skou at Maersk, the largest shipping line in the world. He said this year: “No longer can containers be seen as just in time; they are just in case”. So, you’ve got the head of the largest shipping line in the world saying: “I can’t provide you with a reliable service for a just in time business”. Everything in the modern world is a logistic chain of distant manufacturing and local consumption and you have huge food producers that still rely on the “just in time logistics”.

How has that affected prices?

I’ll give you an example: I was speaking to a barn in Toronto today. Our freights to that city are now eleven times more expensive than this time last year. Last year, as a percentage of the product, a freight was 10%, this year, the actual container costs more than the stuff I’m putting in it. That is madness! Because you’ve got a situation where people’s cashflow relies on “just in time” as they cannot afford to buy 6 months forward. So now, they can’t provide the goods required in the market and that affects local economies. All these things stacking into each other simply make it tough.

How is the market responding to the reduced Canadian yields?

Growers are very educated regarding the markets: every grower has a cell phone and they all know how the prices are doing. How many times have I heard soybean traders say “Oh yeah, the Argentinian growers will sell…” But why didn’t they sell? Because they know you are short.  The Canadian grower has had a massive issue and Australian growers are intimately aware of the values the Canadian growers are trading at. They are intimately aware and they are pricing accordingly. There is an understanding of what’s happening, there is no opacity, no wall of secrecy. So, Canada’s got a cold, Australia is going to sneeze, and that’s what’s happened. The Australian growers are aware of this situation in Canada. It’s funny, for instance, this week Australian growers became aware of government changes in pulses before traders.

And how much presence is Canada having overall?

What happened this year in Canada is that they had a spring crop and a spring rainfall, which got them to be average at best. And then, they ran out of rain. I’d say … just be aware that all you are going to get out of Canada this year is average at best.

As I said before, Canada is driving this market and Australia is just holding on … is enjoying that Canada has a drought because in 2015 it was the opposite. Australia had the drought, India had the drought, and Canada had the crop. That’s the difference! This year, the big driver, Canada has a drought and that’s actually a problem because Canada having a drought takes too much production out of the total supply. Australia is our little pimple, squeeze it, pop it, hurts a bit, crying. Canada is big, we are losing serious production that can’t be obtained anywhere else.

And in terms of Australian red lentils?

The thing with pulses is, they trade as a relativity. What is the relativity of pulses versus selling wheat and canola?  Growers are incredibly aware of prices, so they are going to sell wheat. Wheat today is a better sell, they are going to sell wheat, and they have actively sold wheat: it’s low risk. So, in terms of lentils, they will just wait for the number that works for them, or just shut the barn door. 

And that’s the mathematics that growers are doing all the time. What’s my relativity? And can I sit on them? Yes, I can, because pulses store well. Lentils are very easy to store, easy to fumigate, they don’t deteriorate.

So that’s a grower’s mentality today: intimately aware of what’s happening in Canada and in India. And it is not like in 2015 when just pulses were expensive because there were droughts in India. Prices in the US, Australia or Canada haven’t been this high since 2015.

How do you solve a situation where demand is larger than supply?

We have to actually destroy a lasting demand and cut consumption around the edges. Because there is not enough production of lentils, chickpeas, or anything this year. There have been too many issues. Look at Canada and peas: last year they made 4.6 million tons of peas. This year, 2.6. And that production cannot be replaced because no one has the acres.

Which are the present challenges the pulses market is facing?

It’s highly geopolitical and that makes it difficult to trade, because, at the stroke of a pen, something that was making money yesterday is losing money today. What I call a stroke of a pen risk is probably the biggest risk, as well as destination risk. Decisions taken to protect products from external markets that instead create bubble pricing.

So, we’ve got difficult banking, terms of trade and payments security, which are issues as well and therefore make things difficult.

What is your strategy to balance the present challenges of the market?

Many got caught out by the logistics nightmare we have had recently with Covid and the inability to be supplied with containers. We are just creating a logistical pathway from point A to point B. The fact that pulses are in a warehouse doesn’t mean that we don’t want to sell them, it just means they are in a warehouse. All that matters is that they will become food.

What do you think will happen in Australia in 2022?

Prices will remain firm. In terms of yield, what we are seeing on paper is that it will be as good as last year, maybe slightly worse. This year (2020/2021) I reckon that 950.000 tons is realistic. For next season, (2021/2022) I believe 750.000 tons is realistic. 

These are big numbers for Australia and they are bigger than ever. They are raising for that. They are ultimately conservative because they have to be. People do the supply and demand in Australia with an expectation that the carry-in is going to be smaller than what it is now. But we’ve got a grower here that is comfortable in carrying tons. So, if you look at 2017/18/19, three drought years, the growers had tons and prices were high (although not as high as they are now), and growers still had a 50% stock to use. They were happy to stock half their crop. Today is the same because they know that prices can go high on lentils and they can sit on them. Wheat and barley get infected. Lentils don’t. The lower the price, the more comfortable they are with carrying it.