Pulse firm sees demand return

Lentil exports pick up | Alliance Grain Traders Inc. plans to focus on lentil processing

The second quarter of 2012 provided the first positive signal that pulse crop markets have seen in a long time, says one of the world’s largest processors.

“The beginnings of normalized demand and normalized product flow appear to be returning,” Murad Al-Katib, president of Alliance Grain Traders Inc. (AGT), told analysts and investors during a conference call.

The company posted sales of $201.8 million for the quarter ended June 30, up 19 percent from the same quarter a year ago.

Earnings before interest, taxes, depreciation and amortization were flat at $9.3 million.

Indian buyers, who don’t typically enter the market until the third quarter, were active because of depleted stocks, an early start to Ramadan and poor kharif (summer crop) prospects.

As of Aug. 9, India’s growers had planted 4.5 million fewer pulse acres than normal and monsoon rains were 19 percent below the 65-year average. Drought has already been declared in some key pulse producing states.

“We expect there to be a significant impact on seeded acreage and yields,” said Al-Katib.

Monsoon rains are critical because 55 percent of India’s farmland is rain-fed. The moisture that falls in summer is used to fill the irrigation reservoirs that hold water for the winter crops, so the shortfall could have lasting ramifications.

“We see the potential for a two-year impact, meaning the fall crop, the spring crop and the next year’s crops as well,” said Al-Katib.

AGT estimates 350,000 to 400,000 tonnes of Turkish lentil production. That is enough to supply local demand but insufficient for Turkey to mount a major export program into neighbouring markets in the Middle East and North Africa.

Turkey has imported about 200,000 tonnes of lentils in each of the last four years.

“There’s no reason for us to expect that there’s going to be any change on the Turkish imports,” said Al-Katib.

The anticipated production shortfalls in Turkey and India and im-proved access to credit for importers give him confidence that pent-up pulse demand will finally materialize in the second half of 2012 and throughout 2013.

There are already signs that is happening. Canadian lentil exports increased 19 percent in April 2012 over April 2011 and 34 percent in May 2012 over May 2011.

Al-Katib said that should allow AGT to increase its margins by focusing on processing a high-value crop such as lentils rather than a commodity crop such as peas.

The company improved its asset use and margins in the latter parts of the second quarter.

Strong demand from India and Turkey are expected to draw down high lentil carry-in stocks and the ample pulse production anticipated in the United States and Canada.

Al-Katib was asked if the improved outlook will result in an announcement that the company’s proposed $50 million Regina pasta project will proceed in 2013.

He made it clear that the company has no intention of undertaking any major capital expenditures until the global economy has fully stabilized. While there are signs of recovery, there is still plenty of uncertainty, he added.

“We are in the mode of asset utilization, earnings growth, margin improvement and efficiency development,” said Al-Katib.

“That’s where our focus is today.”

Cost cutting is another focus.

The company has eliminated more than 30 positions resulting in $1.2 million in annual savings, shaved premiums on accounts receivable, property and cargo insurance and reduced its net debt and the interest cost associated with that debt.

Al-Katib said cost cutting will continue to be a priority even if there is a return to normalized demand.

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