Tight red lentil supply, good demand bodes well for prices

Red lentil prices have been on a steady ascent since January, and there is no let-up in sight, says an analyst.

Chuck Penner, analyst with LeftField Commodity Research, expects continued strong demand for the commodity from India and Turkey, Canada’s two biggest customers.

“We’re going to see the supply of reds continue to tighten up and support the market, so I’m friendly through the rest of this year and I think we’ll see good buying early in the 2014-15 year as well,” he said.

Turkey’s crop has been damaged by extreme drought, and Penner believes it will be smaller than the 401,750 tonne average of the last four years.

There have been reports that an April frost caused more damage to an already suffering crop, but Penner doesn’t believe that to be the case.

The frost occurred in the central highlands rather than in the southeast where the lentils are grown.

Turkish lentil prices have come off their highs in the last two or three weeks.

“That tells me that the frost isn’t an issue,” said Penner.

Prices had been rising because of concerns about the drought, but strong imports of Canadian lentils eased the anticipated supply shortfall and caused prices to relax a bit.

India’s lentil prices have also been on the rise because of late-February rain that damaged the country’s chickpea crop and increased de-mand for imported pulses.

The India Meteorological Department released its first 2014 southwest monsoon seasonal rainfall forecast last week.

It calls for 95 percent of normal rainfall for the critical June through September monsoon period compared to 106 percent of normal last year.

There is a 60 percent chance of an El Nino developing during the monsoon season, which could lead to reduced rainfall.

A disappointing monsoon season could reduce production of pigeon peas, providing strength to green lentils, which are used as a substitute.

Penner doesn’t put much faith in weather forecasts, especially ones done this far in advance. The market appears to agree.

“I don’t think (the forecast) is having any impact on prices yet in India.”

India will issue an updated forecast in June.

The other recent development for lentil markets is Statistics Canada’s seeding intentions report, which forecast 2.86 million acres of the crop, up 20 percent from last year.

Many analysts and traders were forecasting a 30 percent increase resulting in more than three million acres of the crop. Penner wasn’t one of them. He thinks the Statistics Canada estimate is bang on.

The market shrugged off the report.

“Overseas buyers don’t typically make big moves based on the acreage numbers,” said Penner.

They likely see the increase as a comfortable number that will offset a forecast 12 percent decrease in lentil plantings in the United States.

Penner said the real tale will be told in June when Statistics Canada breaks down the acreage estimate by class.