Positive outlook for green lentils

The market outlook for green lentils is improving because of stronger demand and diminishing supply, says an analyst.

“The worst-case scenario for price trend is flat, but I think it’s going to grind higher in due time,” said Greg Kostal, president of Kostal Ag Consulting.

“It’s not going to take much to turn this into a firmer price trend.”

He believes 2014 will be the third consecutive year of declining large green lentil stocks in Canada.

That would be a welcome relief after a huge 725,000 tonne crop of large greens in 2010-11 resulted in bloated ending stocks of 275,000 tonnes, which put a damper on prices.

For 2014-15, he is forecasting 975,000 acres of large greens and 625,000 tonnes of production, down 20,000 tonnes from last year.

“A million acres of large green lentils is not enough to cover traditional demand,” he said.

Total green lentil area should be 1.3 million acres with 860,000 tonnes of production, which would be similar to last year.

He expects growers to plant 250,000 acres of small green lentils and 50,000 acres of other types.

Kostal believes demand will be stronger than usual because of drought in the Middle East. Iran and Iraq could buy 40,000 tonnes of good quality large green lentils.

He also anticipates strong sales to Algeria, which can buy 50,000 to 75,000 tonnes of No. 2 large green lentils a year.

Green lentil demand has been passive in 2013-14 because of good lentil crops in the Mediterranean basin, southern Europe and North Africa.

Mexico has been picking away at lentil supplies, but Canadian railways have recently curtailed shipments to that country, focusing on west coast movement to meet the government-mandated grain shipping targets.

Kostal expects markets to transition from a passive approach to a more aggressive buying pattern with the renewed demand from the Middle East and shrinking Canadian supply.

“Prices have been cheap enough, long enough that I think we’re going to see a little bit better buying behaviour,” he said.

“You’re going to be getting to the point where sub-20 (cents per pound) lentils to me would be too cheap.”

Green lentil demand is typically fairly static year-to-year, but Kostal thinks buyers may be interested in making some forward purchases this year for fear of rising prices.

The one wildcard in green lentil markets is India’s pigeon pea crop. Traders will import green lentils as a substitute in years when the crop fails, which can have a major influence on prices.

The Australian Bureau of Meteorology believes there is at least a 70 percent chance of an El Nino developing this year, with most models predicting its arrival in August. That would reduce India’s monsoon rains.

World Weather Inc. says there is also a chance that the Indian Ocean Dipole will enter a negative phase, which would further reduce monsoon rains.

If those two things happen, there’s a good chance the pigeon pea crop would suffer.

Indian buyers will start importing No. 2 large green lentils when they are at a $100 per tonne discount to pigeon peas. The price relationship is close to that now.

Prices could easily run up by $200 to $300 per tonne if India has a pigeon pea crop failure. If that happens, Kostal wouldn’t be surprised to see green lentil prices increase by half that amount.

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